Determinants of Financial Hedging Strategies among Commodity Producer Firms in Latin America

Carlos Giraldo (), Iader Giraldo, Cristian Huertas () and Juan Camilo Sánchez ()
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Cristian Huertas: Universidad Nacional de Colombia
Juan Camilo Sánchez: Dirección de impuestos y aduanas nacionales

No 21196, Documentos de trabajo from FLAR

Abstract: This study investigates the determinants of hedging practices among commodity-producing companies in Latin America. The extractive sector's significant economic importance in the region makes understanding these firms' hedging decisions highly relevant. The findings reveal several key insights. Firm size, leverage, and commodity prices are important factors consistent with prior research. Additionally, the region's exchange rate exposure means that firms' acquisition of US dollar-denominated debt is a significant determinant of their hedging activities, as well as the firms’ access to the international markets. Notably, the type of ownership also significantly impacts hedging, as state-owned firms are more likely to hedge to reduce volatility in their revenues for the case of oil-firms. In contrast to the limited research on Latin American extractive firms, an extensive literature has explored hedging strategies in developed countries' extractive companies. This study aims to address the gap by investigating the determinants of hedging practices among commodity-producing companies in Latin America.

Keywords: hedging; risk management; derivatives; commodity-producing companies (search for similar items in EconPapers)
JEL-codes: C23 D81 G30 G32 Q02 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2024-09-15
New Economics Papers: this item is included in nep-cfn, nep-ipr, nep-lam and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:col:000566:021196

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