Determinants of hedging strategy in foreign exchange risk management by exporting small and medium-sized enterprises: The mediating role of resources

Abstract

Foreign exchange risk management is well researched in the context of multinational enterprises, but how small and medium sized exporting firms manage their forex risk is still largely unexplored, especially through an international business lens. This study investigates how New Zealand and Australian exporting small and medium-sized enterprises (SMEs) manage foreign exchange (forex) risk, and the impact of increasing internationalisation on this. The study draws on two theoretical perspectives to assist the investigation: the resource-based view and internationalisation theory. The surveys were distributed to New Zealand and Australian exporting firms across a full range of industry sectors represented in the business database provided by Kompass. Statistical analyses, including exploratory factor analysis, and confirmatory factor analysis were conducted to test the measurement model, structural model and research hypotheses. The study identifies four determinants of forex risk strategy of exporting SMEs: degree of internationalisation, forex exposure, perceived forex risk and resources. Organisational and human resources are shown to have a key mediation role in the model. The study provides insights into key determinants of forex risk management and their interrelationships in the little examined context of exporting SMEs.