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Hedge Strategies of Corporate Houses

Author

Listed:
  • Morteza Nagahi
  • Mohammad Nagahisarchoghaei
  • Nadia Soleimani
  • Raed M. Jaradat

Abstract

This paper compares and contrasts the hedge strategies through derivative instruments by Indian and USA corporate houses. The derivative instruments have little predictive power in explaining corporate hedging strategies both in the USA and Indian firms. The purpose of the study is to provide a setting where reconciling conflicting results from the literature may be appropriate and to compare different hedge strategies in a specific period in two different countries (USA and India). The evidence based on multivariate empirical relations between hedging in American firms and firm¡¯s characteristics fails to provide any support for any of the tested hypotheses except for profitability represented by dividend yield. We conclude that the relationship between hedging and dividend yield in the proposed model is negative. The same analysis conducted for Indian companies has shown that there is no statistically significant explanatory variable for hedging; therefore, it is not dependent on any of the predicted theories of hedging. On the other hand, we find some significant relationships between firms¡¯ characteristics. Large Indian firms use internal hedge strategies rather than market strategies, such as derivatives. The derivative market development then could play a major role in terms of risk management of firms across countries.

Suggested Citation

  • Morteza Nagahi & Mohammad Nagahisarchoghaei & Nadia Soleimani & Raed M. Jaradat, 2018. "Hedge Strategies of Corporate Houses," Journal of Business Administration Research, Journal of Business Administration Research, Sciedu Press, vol. 7(1), pages 6-21, April.
    • Handle: RePEc:jfr:jbar11:v:7:y:2018:i:1:p:6-21
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    References listed on IDEAS

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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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