Financial and institutional determinants of the exchange rate risk management in the Jordanian firms

Abstract EN

Earlier researches examined the determinants of the exchange rate exposure (ERE) and the determinants of the optimal hedging strategies (Jorion, 1990 ; Stulz, 1984 ; Nance et al, 1993 ; and Judge, 2004).

Later researchers expanded the scope of exchange rate risk management (ERRM) studies through examining the effect of institutional factors in western economies (Bodnar et al, 2001 and Pramborg, 2002).

It was argued that (Miller, 1993) the influence of institutional factors were more significant in the developing countries.

This argument led to the proposed study, as it examined the financial and institutional determinants of the (ERRM) practices in Jordanian firms.

Based upon one hundred and twenty-two structured-interviews with the largest commercial and manufacturing Jordanian firms, the results of the study suggested that although ERRM theories seem to be valid especially in larger companies, institutional factors provided more explanations concerning ERRM practices in Jordan and play a crucial role in explaining the ERRM practices.

The differences between the results of this study and the previous similar studies were attributed to institutional differences between Jordan, as one of the developing countries, and the developed countries.

Therefore, because of the institutional similarities between Jordan and the rest of the developing countries, these results may be relevant to the other developing countries.