Accounting Exposure Risk Management in the Jordanian Firms An Empirical Study

This study investigated Accounting Exposure Risk Management (AERM) in the Jordanian firms, with special emphasis on exposure through transactions that make them heavily exposed to exchange rate changes through the accounts receivable and accounts payable denominated in foreign currency resulting from exporting and importing. Based on AE theories, which state that firms with higher linkage with a foreign environment would face higher degree of AE and consequently would hedge more, this study examined this normative theory within the context of Jordanian firms taking into consideration the size and industry effects on the levels of AERM that Jordanian firms use. Based on a questionnaire survey that was handed to one hundred and fifty four (154) commercial and manufacturing Jordanian firms, the results of the empirical study suggested that Jordanian firms were not heavy users of the AERM instruments, especially the advanced innovations like currency derivatives. The percentages of foreign to total sales and foreign to total debt were significantly correlated with levels of managing accounting exposure. These results were explained as Jordanian firms which have revenues denominated in foreign currency would be able to obtain loans denominated in the same foreign currency which creates natural offsetting between the in and out foreign cash flows. In addition, while the size seems to have a high effect on the level of managing AE that Jordanian firms use, the sector of the firm revealed insignificant effect on the behaviour of Jordanian firms toward the AE that they face. In sum, it is possible to conclude that AE theories seem to be somehow applicable in the Jordanian firms. However, they do not provide full explanation about the AERM behaviour, which suggests that there are other factors which play roles in determining the AERM behaviour in the Jordanian firms. Keywords: