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Mitigating Financial Risk By Using Hedging Strategies

Author

Listed:
  • Anca BUTNARIU

    („Gheorghe Asachi” Technical University of Iasi)

  • Florin-Alexandru LUCA

    („Gheorghe Asachi” Technical University of Iasi)

  • Andreea APETREI

    (Catholic University of Valencia)

Abstract

Financial derivatives are now widely used by corporations to manage exposure to currency, interest rate, and commodity price risks. The motivation for non-financial firms to engage in corporate hedging is one of the most intensively discussed topics in corporate finance research. Recent financial theory suggests that there are several ways through which corporate hedging can increase firm value in the sense of the maximization of shareholder value. A rich body of literature consists of studies that have empirically investigated the theoretical explanations for corporate hedging, literature that presents rather mixed evidence for the drivers of corporate hedging. This paper investigates the effects of hedging activity on non-financial firm value and how operational hedging is related to and differentiated by financial hedging, by providing an extensive overview and synthesis of the existing literature.

Suggested Citation

  • Anca BUTNARIU & Florin-Alexandru LUCA & Andreea APETREI, 2018. "Mitigating Financial Risk By Using Hedging Strategies," SEA - Practical Application of Science, Romanian Foundation for Business Intelligence, Editorial Department, issue 16, pages 75-79, May.
    • Handle: RePEc:cmj:seapas:y:2018:i:16:p:75-79
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    References listed on IDEAS

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    3. Bhagwan Chowdhry & Jonathan T. B. Howe, 1999. "Corporate Risk Management for Multinational Corporations: Financial and Operational Hedging Policies," Review of Finance, European Finance Association, vol. 2(2), pages 229-246.
    4. Catherine Schrand & Haluk Unal, 1998. "Hedging and Coordinated Risk Management: Evidence from Thrift Conversions," Journal of Finance, American Finance Association, vol. 53(3), pages 979-1013, June.
    5. Geczy, Christopher & Minton, Bernadette A & Schrand, Catherine, 1997. "Why Firms Use Currency Derivatives," Journal of Finance, American Finance Association, vol. 52(4), pages 1323-1354, September.
    6. Ulrich Hommel, 2005. "Value-Based Motives for Corporate Risk Management," Springer Books, in: Michael Frenkel & Markus Rudolf & Ulrich Hommel (ed.), Risk Management, edition 0, pages 455-478, Springer.
    7. René M. Stulz, 1996. "Rethinking Risk Management," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(3), pages 8-25, September.
    8. George Allayannis & Jane Ihrig & James P. Weston, 2001. "Exchange-Rate Hedging: Financial versus Operational Strategies," American Economic Review, American Economic Association, vol. 91(2), pages 391-395, May.
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