Investigating the Determinants of the Decision to Engage In a Corporate Hedging Strategy

H H A Yong, Robert Faff and H Nguyen

Studies in Economics and Econometrics, 2006, vol. 30, issue 1, 147-160

Abstract: This paper investigates the decision to engage in a comprehensive corporate hedging strategy for Australian listed companies. Specifically the pursuit of a comprehensive hedging strategy is gauged by jointly investigating the corporate use of foreign currency derivatives; interest rate derivatives; commodity derivatives and foreign debt. The results show that firm size, leverage, dividend yield and block holdings are incentive factors to the comprehensive hedging decision, while executive shares is a disincentive factor. Consistent with hedging theory, the significance of the leverage variables supports the financial distress cost hypothesis. Support is also found for the dividend decision is a substitute for corporate hedging.

Date: 2006
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DOI: 10.1080/10800379.2006.12106404

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