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

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;...

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Bibliographic Details
Published in:Tydskrif vir studies in ekonomie en ekonometrie 2006-04, Vol.30 (1), p.147-160
Main Authors: Yong, H H A, Faff, R, Nguyen, H
Format: Article
Language:English
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Summary: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.
ISSN:0379-6205
2693-5198
DOI:10.1080/10800379.2006.12106404