The citizens of the United States entrust the stewardship of Federal Government financial resources and assets to the legislative and executive branches of Government. Financial and program managers are accountable for program results and fiscally responsible for the resources entrusted to them. Managers must understand that their daily actions have financial implications for taxpayers and affect the amount of public debt the Federal Government must assume to support Government initiatives. Furthermore, managers must be able to provide information essential to monitor budgets, operations, and program performance.
The Federal Government recognizes the importance of having high quality financial systems to support improvement of Government operations and to provide financial and related information to program and financial managers. The CFO Act of 1990, the GPRA, the Government Management Reform Act (GMRA) of 1994, and FFMIA of 1996 mandate improved financial management, assign clearer responsibility for leadership to senior officials, and require new financial organizations, enhanced financial systems, and audited financial reporting.
Bankruptcy 1 is an interesting object of research, being habitually perceived as a shocking and scandalous event, tarnishing management reputation, stigmatizing its owners, and regularly leading to a dishonourable death of the company, leaving outstanding debts in legacy. Its interdisciplinary character makes it even more challenging and extends the reasons for researching it in depth. Apart from these motives, recently a number of researchers significantly contributed to this field, and some of them will be presented in this paper.
On its way to becoming a member of the EU, the Croatian economy (and society in general) extensively compares its characteristics with the existing members. Since Croatian bankruptcy law is for the most part transferred from the corresponding German Insolvenzordnung (Insolvency law), German experiences in this field are especially interesting for Croatian bankruptcy researchers. Even though being a part of the EU, the United Kingdom’s Anglo-Saxon legislative theory and practice is relatively different from those of mainland Europe, therefore making it attractive for comparison.
The empirical literature on the use of foreign currency debt by non-financial firms follows two somewhat related paths. The first strand of literature investigates why firms use or issue foreign currency debt (Allayannis and Ofek (2001), Keloharju and Niskanen (2001), Kedia and Mozumdar (2002)). This literature finds strong support for the use of foreign debt as a hedge for foreign currency exposure. There is also some support for the firms’ choice of currency of debt being influenced by differences in the cost of debt in different currencies due to capital market imperfections (Keloharju and Niskanen (2001) and Kedia and Mozumdar (2002)).
The second strand of this literature examines whether foreign debt and foreign currency derivatives are used as substitutes or complements when hedging foreign currency exposure (Géczy, Minton and Schrand (1997), Allayannis and Ofek (2001), Elliot, Huffman and Makar (2003)). In this literature there is support for the notion that foreign debt acts as a substitute for foreign currency derivatives but there is also evidence which shows that the type or source of exposure might influence the choice of hedging strategy (Allayannis and Ofek (2001). This paper examines a firm’s decision on the choice of foreign currency hedging method, comparing foreign currency derivatives and foreign debt, in order to determine whether they are seen as substitutes or complements. In examining whether foreign currency derivatives substitute for or complement foreign debt this paper identifies firm characteristics that have not been previously considered and is the first paper to investigate this issue using non-US data.
