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The failure of risk management for nonfinancial companies in the context of the financial crisis: lessons from Aracruz Celulose and hedging with derivatives

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  • Rodrigo Zeidan
  • Bruno Rodrigues

Abstract

The main contribution of this article is to present hard evidence on hedging strategies and relate it to behavioural and agency problems resulting from speculation with derivatives. We focus on the case of Aracruz Celulose. We show how the real hedge position of Aracruz -- that lost US2.1 billion in currency derivatives -- deviated from its optimal hedge as the result of speculation with Over-the-Counter (OTC) derivatives.

Suggested Citation

  • Rodrigo Zeidan & Bruno Rodrigues, 2013. "The failure of risk management for nonfinancial companies in the context of the financial crisis: lessons from Aracruz Celulose and hedging with derivatives," Applied Financial Economics, Taylor & Francis Journals, vol. 23(3), pages 241-250, February.
    • Handle: RePEc:taf:apfiec:v:23:y:2013:i:3:p:241-250
    DOI: 10.1080/09603107.2012.714070
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    References listed on IDEAS

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    Cited by:

    1. Bartram, Söhnke M., 2019. "Corporate hedging and speculation with derivatives," Journal of Corporate Finance, Elsevier, vol. 57(C), pages 9-34.
    2. Zeidan, Rodrigo & Müllner, Jakob, 2015. "Firm, market and top management antecedents of speculation: Lessons for corporate governance," Journal of Multinational Financial Management, Elsevier, vol. 32, pages 42-58.
    3. Zamzamir, Zaminor & Haron, Razali & Baharul Ulum, Zatul Karamah Ahmad & Abdullah Othman, Anwar Hasan, 2021. "Non-linear relationship between foreign currency derivatives and firm value: evidence on Sharī‘ah compliant firms," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 28, pages 156-173.
    4. Salles, Thiago Taglialegna & Nogueira, Denismar Alves & Beijo, Luiz Alberto & Silva, Liniker Fernandes da, 2019. "Bayesian approach and extreme value theory in economic analysis of forestry projects," Forest Policy and Economics, Elsevier, vol. 105(C), pages 64-71.
    5. Joel Rabinovich & Rodrigo Perez Artica, 2020. "Cash holdings and the financialisation of Latin American nonfinancial corporations," Working Papers hal-02474321, HAL.
    6. repec:hal:cepnwp:hal-02474321 is not listed on IDEAS

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