Why do firms engage in selective hedging? Evidence from the gold mining industry

Tim R. Adam, Chitru S. Fernando and Jesus M. Salas

Journal of Banking & Finance, 2017, vol. 77, issue C, 269-282

Abstract: The widespread practice of managers speculating by incorporating their market views into firms’ hedging programs (“selective hedging”) remains a puzzle. Using a 10-year sample of North American gold mining firms, we find no evidence that selective hedging is more prevalent among firms that are believed to possess an information advantage. In contrast, we find strong evidence that selective hedging is more prevalent among financially constrained firms, suggesting that this practice is driven by asset substitution motives. We detect weak relationships between selective hedging and some corporate governance measures but find no evidence of a link between selective hedging and managerial compensation.

Keywords: Corporate risk management; Selective hedging; Speculation; Financial distress; Corporate governance; Managerial compensation (search for similar items in EconPapers)
JEL-codes: G11 G14 G32 G39 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (42)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:77:y:2017:i:c:p:269-282

DOI: 10.1016/j.jbankfin.2015.05.006

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