Evidence from Danish, Medium-Sized, Manufacturing Firms
We investigate the effect of founder family influence in the form of managers, board of directors, and/or ownership on hedging and speculation in medium-sized, manufacturing firms in Denmark. On a crude measure of use / non-use of derivatives we find only a weak indication of differences between founder family firms and other firms in relation to their management of foreign exchange rate, interest rate, and commodity price exposures. Digging deeper into a subsample of users of foreign exchange derivatives and debt denominated in foreign currency, we find that founder family firms not only tend to hedge more extensively, they also tend to speculate more often than other firms. While the former result on hedging is in line with founder families' lack of monetary diversification and their non-pecuniary investment in the firm, the latter result on speculation is surprising and can only be explained by Adam Smith's observation that men - in this case members of the founder family - tend to overestimate their own abilities and good fortune. The results of the study are important 1) because the interaction between founder family influence and risk management has received limited attention in the literature (in contrast to the attention given to the interaction between founder family influence and corporate performance) and 2) because the founders or the founders' families or heirs control most of the firms in the world.
Hedging; Founder Family Firms; Speculation; Medium-Sized Firms
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European Financial Management Association, 2009 Annual Meetings