Why Do Firms Hedge? A Review of the Evidence

Judge, Amrit

doi:10.1057/9780230801493_7

Cited by 16 publications

(20 citation statements)

References 39 publications

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“…In this manner, hundreds of primary studies have empirically investigated the theoretical explanations for corporate hedging. However, despite or perhaps exactly because of the vast amount of studies, the empirical literature presents rather mixed evidence for the drivers of corporate hedging (Aretz and Bartram 2010;Bartram et al 2009;Fauver and Naranjo 2010;Judge 2007).…”

Section: Introductionmentioning

confidence: 99%

What do we really know about corporate hedging? A meta-analytical study

Geyer‐Klingeberg

Hang

Rathgeber

et al. 2017

Bus Res

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This paper employs meta-analysis to aggregate and systematically analyze the mixed empirical evidence on the determinants of corporate hedging reported in 132 previously published studies covering data from more than 73,000 firms. Among the fourteen proxy variables analyzed by multivariate meta-analysis, three variables emerge as reliable explanatory factors for corporate hedging decisions supporting the bankruptcy and financial distress hypothesis: dividend yield (positive sign), liquidity (negative sign), and firm size (positive sign). Moreover, for tax-loss carry forwards (positive sign) and research and development (positive sign), our findings indicate a weak impact on corporate hedging behavior reflecting tax reasons, the coordination between financing and investment, and agency conflicts between shareholders and debtholders. Regarding the asymmetric information and agency conflicts of equity hypothesis, we find no explanatory power. The further analysis of heterogeneity via meta-regression reveals several factors that determine the mixed empirical evidence reported in previous studies. First, the results indicate that studies analyzing firms from North America report, on average, a lower impact of leverage on the corporate hedging decision. Moreover, studies examining more recent data samples tend to find a weaker relation between tangible assets and hedging, R&D and hedging, respectively. Overall, our results encourage scientific research to put more emphasis on finer-grained examinations of hedging variations and to discover rationales of corporate hedging extending classical financial theories.

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Section: Introductionmentioning

confidence: 99%

What do we really know about corporate hedging? A meta-analytical study

Geyer‐Klingeberg

Hang

Rathgeber

et al. 2017

Bus Res

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show abstract

“…While the first two categories draw on data extracted from the firms themselves, the final category relies on data from company financial statements. While the latter has the clear advantage of standardized data collection from a large pool of companies, Judge (2007) highlight several drawbacks in the accuracy of the studies using this data source. First, these studies examine derivative usage generally and not hedging specifically, and therefore ignore hedging methods outside derivative trading.…”

Section: (21)mentioning

confidence: 99%

“…Triki (2005) and Judge (2007) review other (c) category studies. The literature on one-company case studies, which uses data on the same level we have access to, includes Petersen and Thiagarajan (2000) and Brown (2001).…”

Section: (21)mentioning

confidence: 99%

“…However, while there is little or no empirical evidence in the literature on whether managing this form of volatility adds value, Brown (2001), using field study data, does find evidence of income smoothing and reduced cashflow volatility but does not test for significant reductions in volatility. Confirming this approach, Judge (2007) argues that volatility analyses must be based on detailed transaction data, as in Brown (2001), rather than on data gathered from financial reports (which do not report the gains or losses from individual derivative transactions). An example of this approach is found in Hentschel and Kothari (2001), who investigate 425 large U.S. firms and arrive at the conclusion that derivative trading does not result in a significant reduction in stock price volatility 4 .…”

Section: Literature Reviewmentioning

confidence: 99%

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Selective hedging in hydro-based electricity companies

2013

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We analyze risk management trends in electricity commodity markets using the production and transaction data and written hedging policies of 12 Norwegian hydropower companies. The scope of our analysis is the hedging of physical electricity production using the power derivatives available at NASDAQ OMX Commodities. In their hedging policy, these companies either use a Cashflow at Risk (C-FaR) approach or a hedge ratio approach, or follow no explicitly stated approach. We find that the derivative cashflows constitute substantial profits for these companies. Furthermore, hedging contributes to reducing the C-FaR for 10 of the companies. These findings are surprising considering that we expect hedging to yield zero expected profit and to smooth the earnings function. Overall, our findings reveal that a practice of incorporating market views in hedging decisions is widespread in the sample companies, as both sanctioned in their written hedging policy and as indicated by the substantial hedging profits.

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“…Têm surgido evidências que dão suporte para essas implicações empíricas (Nance et al, 1993;Saito e Schiozer, 2007;Judge, 2006). Perspectiva concorrente à da maximização do valor dos acionistas é aquela em que se supõe que o hedging pode ser realizado por motivações gerenciais (Smith e Stulz, 1985).…”

Section: Derivativosunclassified

Disclosure de operações de derivativos: Evolução e grau de cumprimento da instrução CVM n° 235/95 e deliberação CVM n° 550/08

Zani¹,

Portal²,

Zanini³

et al. 2011

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RESUMOO objetivo do presente estudo é analisar a evolução e o grau de cumprimento do disclosure de informações de operações com instrumentos derivativos das companhias Aracruz Celulose, Suzano Papel e Celulose, Votorantim Papel e Celulose, Sadia e Perdigão, em consonância com a instrução CVM n° 235/95 e resolução CVM n° 550/08, no período de 2004 ao primeiro trimestre de 2009. Observou-se que as empresas não atenderam a totalidade das exigências do Informativo CVM n° 235. O cumprimento da instrução foi parcial em todas as companhias. O nível de disclosure foi menor quanto aos aspectos relacionados à política de atuação e controle, e foi inexistente em todos os casos quanto à divulgação dos riscos associados. As companhias não apresentaram evolução do grau de cumprimento da instrução. E não foram encontradas diferenças significativas entre o grau de disclosure sobre as operações de derivativos entre o grupo de que sofreram perdas vultosas (Aracruz, Sadia e VCP) e demais empresas (Perdigão e Suzano P.C.). Quanto ao cumprimento dos aspectos de evidenciação exigidos pela deliberação CVM n o 550, observou-se um imediato crescimento do nível de disclosure e uma evolução entre o terceiro trimestre de 2008 e o primeiro de trimestre de 2009, período em que as companhias acabaram por evidenciar plenamente as exigências da deliberação. Os resultados encontrados dão suporte aos argumentos de que não há evidências suficientes para sugerir que a regulamentação melhore a qualidade da informação contábil. Do mesmo, também não há evidencias suficientes para afirmar que a disciplina de mercado seja suficiente para garantir o nível de disclosure adequado. Portanto, pode existir uma complementaridade entre estes dois elementos.Palavras-chave: evidenciação, derivativos, instrução CVM n° 235/05, deliberação CVM n° 550/08. ABSTRACTThe objective of this study is to analyze the evolution and the compliance degree with the disclosure of information of transactions with derivative instruments of companies Aracruz

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Why Do Firms Hedge? A Review of the Evidence

Cited by 16 publications

References 39 publications

What do we really know about corporate hedging? A meta-analytical study

What do we really know about corporate hedging? A meta-analytical study

Selective hedging in hydro-based electricity companies

Disclosure de operações de derivativos: Evolução e grau de cumprimento da instrução CVM n° 235/95 e deliberação CVM n° 550/08

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