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Why do firms engage in selective hedging? Evidence from the gold mining industry

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  • Adam, Tim R.
  • Fernando, Chitru S.
  • Salas, Jesus M.

Abstract

The widespread practice of managers speculating by incorporating their market views into firms’ hedging programs (“selective hedging”) remains a puzzle. Using a 10-year sample of North American gold mining firms, we find no evidence that selective hedging is more prevalent among firms that are believed to possess an information advantage. In contrast, we find strong evidence that selective hedging is more prevalent among financially constrained firms, suggesting that this practice is driven by asset substitution motives. We detect weak relationships between selective hedging and some corporate governance measures but find no evidence of a link between selective hedging and managerial compensation.

Suggested Citation

  • Adam, Tim R. & Fernando, Chitru S. & Salas, Jesus M., 2017. "Why do firms engage in selective hedging? Evidence from the gold mining industry," Journal of Banking & Finance, Elsevier, vol. 77(C), pages 269-282.
    • Handle: RePEc:eee:jbfina:v:77:y:2017:i:c:p:269-282
    DOI: 10.1016/j.jbankfin.2015.05.006
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    More about this item

    Keywords

    Corporate risk management; Selective hedging; Speculation; Financial distress; Corporate governance; Managerial compensation;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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