The determinants of foreign exchange hedging in Alternative Investment Market firms

Andrew Marshall, Martin Kemmitt and Helena Pinto

The European Journal of Finance, 2013, vol. 19, issue 2, 89-111

Abstract: This paper examines the foreign exchange (FX) hedging by firms listed on the Alternative Investment Market (AIM) in the UK to contribute to the empirical debate on the determinants of the FX hedging. Despite our selection criteria that all our firms have exposure to FX risk, we find that only around a third of our sample hedge their FX risk. Contrary to expectations, we find a significant negative relation between hedging and the extent of managerial ownership of the firm. This could be explained by the particular agency relations in AIM firms, the significant managerial ownership of these firms or managers’ overconfidence. We find that the larger of the AIM firms in our sample hedge more, indicating that despite the FX risks they face, some of the smaller AIM firms lack financial knowledge or understanding to deal with their potential FX risks. Finally, we find an industry effect in the decision to hedge as AIM firms in the basic material and financial sectors are less likely to hedge FX risk than other sectors Our results are robust to a number of further checks.

Date: 2013
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1080/1351847X.2012.659267 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:eurjfi:v:19:y:2013:i:2:p:89-111

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/REJF20

DOI: 10.1080/1351847X.2012.659267

Access Statistics for this article

The European Journal of Finance is currently edited by Chris Adcock

More articles in The European Journal of Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().