What makes firms manage FX risk?

We examine factors that determine firms' decision to manage foreign exchange risk in an emerging market. Using survey data on the FX risk management of 223 non-financial firms in Korea, we find that firm size, a proxy for hedging costs, is the dominant factor. Consistent with this finding, firm size has stronger explanatory power for external methods than for internal methods, which have relatively lower costs. Besides firm size, export revenue is important in determining the hedging. This is particularly so for public firms, which are subject to disclosure requirements, and thus have more incentive for a stable net income stream.