Corporate reputation and hedging activities

Zero Deng and J. Jimmy Yang

Accounting and Finance, 2023, vol. 63, issue S1, 1223-1247

Abstract: This study examines whether corporate reputation affects derivative hedging. We posit that high‐reputation firms are more likely to engage in hedging due to greater reputation costs and/or their commitment to lower financial risks. We find that high‐reputation firms are more likely to engage in hedging, especially when their hedging efforts or effects are more observable to stakeholders. We also find that high‐reputation firms are less likely to disclose the notional values of hedging positions and that interest rate hedging by high‐reputation firms is detrimental to firm value. Our results shed light on the impact of reputational concerns on corporate risk management and disclosure policies.

Date: 2023
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https://doi.org/10.1111/acfi.13018

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