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The Motives for Corporate Hedging among UK Multinationals

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  • Joseph, Nathan Lael
  • Hewins, Robin David
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    Abstract

    This study employs questionnaire survey and financial data to assess the extent to which the motives for corporate hedging among UK multinational corporations (MNCs) are consistent with existing theories. Corporate treasury managers' perceptions of (1) stakeholders' attitudes to risk and (2) the behaviour of financial markets are also examined. The results indicate that the primary motive for corporate hedging is to minimize the impact of foreign exchange (FX) rate fluctuation on operational cash flow. Motives which relate to the extra compensation required by bondholders and substantial guarantees required by customers and suppliers for bearing FX risk have minor impacts on hedging decisions. The study also examines the extent to which the motives emphasized by firms have impacts on the variability of specific financial variables as well as on non-financial variables. Our results indicate some consistency with the emphasis firms place on certain hedging motives and the expected impacts on those variables. In some instances however, the impacts might be considered to be in the wrong direction. Copyright @ 1997 by John Wiley & Sons, Ltd. All rights reserved.

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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

    Volume (Year): 2 (1997)
    Issue (Month): 2 (April)
    Pages: 151-71

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    Handle: RePEc:ijf:ijfiec:v:2:y:1997:i:2:p:151-71

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    Web page: http://www.interscience.wiley.com/jpages/1076-9307/

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    Web: http://jws-edcv.wiley.com/jcatalog/JournalsCatalogOrder/JournalOrder?PRINT_ISSN=1076-9307

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    Cited by:
    1. Joseph, Nathan Lael, 2000. "The choice of hedging techniques and the characteristics of UK industrial firms," Journal of Multinational Financial Management, Elsevier, vol. 10(2), pages 161-184, June.
    2. Hoa Nguyen & Robert Faff, 2007. "Are Financial Derivates Really Value Enhancing? Australian Evidence," Accounting, Finance, Financial Planning and Insurance Series 2007_14, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
    3. M. Adams & M. Buckle, 2003. "The determinants of corporate financial performance in the Bermuda insurance market," Applied Financial Economics, Taylor & Francis Journals, vol. 13(2), pages 133-143.
    4. Kapitsinas, Spyridon, 2008. "Derivatives Usage in Risk Management by Non-Financial Firms: Evidence from Greece," MPRA Paper 10945, University Library of Munich, Germany.
    5. Ahmed A. El-Masry, 2004. "The Exchange Rate Exposure of UK Nonfinancial Companies: Industry-Level Analysis," International Finance 0401001, EconWPA.
    6. Zélia Serrasqueiro & Paulo Maçãs Nunes, 2008. "Performance and size: empirical evidence from Portuguese SMEs," Small Business Economics, Springer, vol. 31(2), pages 195-217, August.
    7. Aabo, Tom & Simkins, Betty J., 2005. "Interaction between real options and financial hedging: Fact or fiction in managerial decision-making," Review of Financial Economics, Elsevier, vol. 14(3-4), pages 353-369.
    8. Ammon, Norbert, 1998. "Why Hedge? - A Critical Review of Theory and Empirical Evidence -," ZEW Discussion Papers 98-18, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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