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Introduction Taiwan’s economy is mainly export-driven. Since 1970s, countries have implemented the floating exchange rate system, and the fluctuations in exchange rate have an enormous impact on the export prices of the enterprises (Alkebäck & Hagelin, 1999). The fluctuations in exchange change will result in decrease or increase in settlements of the trading between enterprises, indirectly affecting the shareholder interests. Hence, enterprises may avoid the system risk of exchange rate by buying or selling financial derivatives. The control of exchange rate risk has become an increasingly important and valued subject for enterprises. The output of Taiwan’s information industry has occupied the pivotal part in global market. Most of the literature about Taiwan’s information industry development focuses on the relationship between internationalization level and corporate governance, the motivations and strategies for the internationalization of the information industry, the globalized functional relationships in the information industry, or explores the employees and organizational core functions in the information industry (Conyon & Peck, 1998; Zald, 1969; Supanvanij & Strauss, 2006; Mian, 1996). Enterprises having larger size and greater financial crisis costs will be more likely to use financial derivatives for hedging. Particularly, the electronics industry is more proactive in using financial derivatives trading for hedging than other industries (Venkatachalam, 1996). Regardless of the electronics or the non-electronics industries, investors will partially use the contract amount. In summary, the above literature mainly discusses the use of financial derivatives in electronics industry. Few discussions on the relevance of information industry and the use of financial derivatives in the background of economic cycle have been made in the past. Hence, it is worth to be reviewed and studied in the present. This paper probes into the relevance and significant level of using financial derivatives in the long economic development process of alternating active periods and downturn periods by the upstream, middle stream and downstream manufacturers in the information industry, who are facing to exchange rate risks? The problems discussed are as follows. What are the hedge factors that affect the use of financial derivatives of enterprises in the information industry in Taiwan? Are there any differences in hedge factors of engaging in financial derivatives trading of enterprises in the information industry in Taiwan when they face types of risks and use hedging tools? In the business cycle, is there any significant relevance between manufacturers in different positions of the supply chain of the information industry? This paper uses the logistic model to verify the relationships among the use of financial derivatives to avoid risks from different sources, the selection of hedging tools and major financial variables in case of the information industry in Taiwan. The multinomial logistic is applied to understand whether the use of financial derivatives for hedging is effective or of poor effect or without significant effects. The corporate hedging demand derived from the company size, risk exposure extent or financial risk or company’s growth investment opportunity variables or financial price fluctuations. Changes in financial prices not only affect the earnings in the financial statements of the company, but also affect the survival of the company. Hence, enterprises will protect financial position through hedging policies, and further enhance the current value of the company. Below is the review of the literature on the company’s hedging motivations as proposed by scholars at home country and in abroad. The implementation of investment plans are determined by investment returns. If most of the benefits of certain investment have to be paid to the creditors rather than shareholders, the shareholders will be very likely to abandon the investment plan, resulting in the problem of insufficient investment (Myers, 1977; Chang, 2000). When a company has more growth investment opportunities, it is more likely to face the problem of insufficient investment and more likely to use financial derivatives for hedging to reduce cash flow volatility (Lin & Smith, 2007; Nance et al. 1993). Tenth Annual International Daejeon, South Korea P a g e | 80 Smart Sourcing Conference June 28-29, 2012
Data and Empirical Result With Taiwan’s listed and OTC enterprises of the information industry traded on Taiwan Stock Exchange in the period from January 1990 to December 2011 as the research subjects, this paper explores the type of financial derivative that should be selected at various stages in the business cycle, and how to use the characteristics of such financial derivatives to avoid foreign exchange rate risk and risks arising from other factors. This paper has eliminated enterprises of the non-information industry, enterprises with omissions of requested variables, enterprises of incomplete financial information or enterprises that have been merged or delisted due to financial crisis during the research period. After the removal of such samples according to the above standards, this paper selects 344 samples. The data are sourced from the prospectus and annual reports of Taiwan’s listed and OTC enterprises, the public information websites. This research is divided into four parts: the first, an introduction of the general survey of using financial derivatives at various stages of business cycle by the listed enterprises of the information technology in Taiwan; the second, using the Pearson correlation analysis to analyze the correlation among variables and removing the collinearity of regression model; third, employing the logistic regression analysis to discuss the hedging tools and types of financial derivatives by enterprises; and the last using multinomial logistic to discusses how enterprises use different financial derivatives to avoid different risks and the covariance relationship arising from the use of different hedging tools and hedging effectiveness. The dependent variable of this paper is the use of financial derivative for hedging with 1 denotes use and 0 denotes no use of financial derivatives. This is a discontinuous binary variable that is not suitable for general linear regression model. This paper employs the logistic model to discuss the determining factors affecting the use of financial derivatives at various stages of business cycle of listed enterprises of the information technology industry. The empirical model of this study is as below: This paper also discusses how enterprises use different financial derivatives to avoid different risks and the covariance relationship arising from the use of different hedging tools and hedging effectiveness. Since the dependent variables are multiple choices, the multinomial logistic model is used as the analysis tool. In theory, this model inherits the characteristics of the logistic model to test the relationship between the occurrence probability of the dependent variables and the explanatory variables. The difference is that the dependent variable of the logistic model is dichotomy (0 and 1) while the dependent variable of Multinomial Logistic is multiple categories (0, 1, 2, 3, 4 …). In this model, the dependent variables include the types of risks and types of hedging tools used by the company during the period of the empirical study. Suggestions Regarding factors affecting the use of financial derivatives for hedging by enterprises, this study uses multinomial logistic regression analysis to explore factors affecting the use of types of hedging tools and hedging tool combinations by the company, findings are empirically. In this study, an enterprises with greater net operating income and ratio of foreign sales will have more interests to use forward contracts, option or others to hedge. In case of enterprises using swap contracts to hedge, all the relevant explanatory variables are almost not significant and no conclusion has been reached accordingly. Eventually, choosing the most suitable instrument, enterprise is suggested to make certain of what its trade activities are being carried out, exhaustively estimate exchange rate, consequently, you might make the best decision. References will be available on request. Tenth Annual International Daejeon, South Korea P a g e | 81 Smart Sourcing Conference June 28-29, 2012 ∑ ∑ ∑
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2012 Global Sourcing of Services: B
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Center for Global Outsourcing Tenth
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Center for Global Outsourcing 26 Be
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Dear Conference Participants: I wou
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Center for Global Outsourcing 26 Be
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2012 June 28 8:00AM-5:30 PM Registr
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2012 June 29 8:00AM-12:00PM Registr
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Contemporary Issues and Challenges
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Introduction Outsourcing is contrac
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In this way Big Business is on the
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Introduction and Literature Review
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DESIGNING AND IMPLEMENTING A FRAMEW
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giving weight to the sub criteria,
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Abstract Secrets of Competitiveness
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outsourcing some or major function
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