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The Influence of Financial Risk Hedging Practices on the Performance and Resilience of Companies Listed on the Zimbabwean Stock Exchange (ZSE)

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  • Brian Basvi

    (University of Zimbabwe)

Abstract

Businesses are more vulnerable to a range of hazards in the dynamic and demanding business environment, particularly due to unfavourable changes in the macroeconomic landscape and heightened competition. Businesses that operate in such an unstable environment are primarily susceptible to financial risk. Many businesses in Zimbabwe are currently losing money as a result of improper hedging and expensive procedures used to reduce these risks. Massive companies in Zimbabwe recorded losses of 25.7 billion USD and 262.3 million USD respectively in 2023. These losses were attributed to improper hedging methods. Therefore, the purpose of this study was to look into how financial risk hedging strategies affected ZSE firms’ performance. The research had four main goals: to determine how foreign exchange hedging practices affect listed firms’ performance at the ZSE; to investigate the impact of commodity price hedging practices; to assess the impact of interest rate hedging practices; and to investigate the impact of equity risk hedging practices. The quantitative data that was gathered for the study was analysed using both descriptive and inferential statistics. The average distribution and variance were measured in the descriptive analysis by the study using the mean and standard deviation respectively. A multiple regression model was used in the inferential statistics. Using a regression model, the researcher was able to examine how different performance was depending on whether foreign exchange, interest rate, and commodity price risks were hedged using futures, forwards, options, or swaps. For the last five years, from 2019 to 2023, information on the return on invested capital (ROIC) and return on assets (ROA) was gathered from the company’s financial statements. A slightly high degree of influence was indicated by the mean score of the study variables which included equity hedging practices (mean=3.9369), central bank controls (mean=3.9922), commodity pricing risk hedging practices (mean=3.8693), interest rate risk hedging practices (mean=3.6406), and foreign exchange hedging practices (mean=3.6311). The study found a favourable correlation between listed firms’ performance, the moderator (central bank controls), and their hedging activities. When the moderator variable (central bank controls) was included in the model regress, the study’s R2 increased from 0.391 to 0.617.

Suggested Citation

  • Brian Basvi, 2024. "The Influence of Financial Risk Hedging Practices on the Performance and Resilience of Companies Listed on the Zimbabwean Stock Exchange (ZSE)," International Journal of Research and Scientific Innovation, International Journal of Research and Scientific Innovation (IJRSI), vol. 11(5), pages 761-774, May.
    • Handle: RePEc:bjc:journl:v:11:y:2024:i:5:p:761-774
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    References listed on IDEAS

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    4. Miss Eva Gutierrez, 2003. "Inflation Performance and Constitutional Central Bank Independence: Evidence From Latin America and the Caribbean," IMF Working Papers 2003/053, International Monetary Fund.
    5. David A. Carter & Daniel A. Rogers & Betty J. Simkins, 2006. "Does Hedging Affect Firm Value? Evidence from the US Airline Industry," Financial Management, Financial Management Association International, vol. 35(1), pages 53-86, March.
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