Which corporate hedging motives are appropriate? An institutional shareholders' perspective

This note presents some empirical evidence on the hedging motives that institutional investors consider to be appropriate for firms. Our results indicate that in some cases, the views of institutional investors are similar to those of the treasury managers of UK multinational companies (MNCs). Howev...

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Bibliographic Details
Published in:International journal of finance and economics 2000-10, Vol.5 (4), p.339-347
Main Authors: Solomon, Jill Frances, Joseph, Nathan Lael
Format: Article
Language:English
Subjects:
corporate hedging
F23
F30
Foreign exchange rate risk
foreign exchange risk
G10
Hedging
Institutional investments
institutional investors
Interest rates
Investors
Multinational corporations
Questionnaires
Statistical analysis
Stockholders
Studies
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Summary:This note presents some empirical evidence on the hedging motives that institutional investors consider to be appropriate for firms. Our results indicate that in some cases, the views of institutional investors are similar to those of the treasury managers of UK multinational companies (MNCs). However, we found other important cases where the views of institutional investors differ from the hedging practices of firms. For example, institutional investors place a strong degree of importance on the hedging motive that is associated with financial distress. This result contrasts with earlier evidence from MNCs themselves. Our findings have important implications for theoretical work that is associated with agency considerations and the extent to which the firm communicates its financial policies to investors. Copyright © 2000 John Wiley & Sons, Ltd.
ISSN:1076-9307
1099-1158
DOI:10.1002/1099-1158(200010)5:4<339::AID-IJFE134>3.0.CO;2-F