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Investigating the Determinants of the Decision to Engage In a Corporate Hedging Strategy

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  • H H A Yong
  • R Faff
  • H Nguyen

Abstract

This paper investigates the decision to engage in a comprehensive corporate hedging strategy for Australian listed companies. Specifically the pursuit of a comprehensive hedging strategy is gauged by jointly investigating the corporate use of foreign currency derivatives; interest rate derivatives; commodity derivatives and foreign debt. The results show that firm size, leverage, dividend yield and block holdings are incentive factors to the comprehensive hedging decision, while executive shares is a disincentive factor. Consistent with hedging theory, the significance of the leverage variables supports the financial distress cost hypothesis. Support is also found for the dividend decision is a substitute for corporate hedging.

Suggested Citation

  • H H A Yong & R Faff & H Nguyen, 2006. "Investigating the Determinants of the Decision to Engage In a Corporate Hedging Strategy," Studies in Economics and Econometrics, Taylor & Francis Journals, vol. 30(1), pages 147-160, April.
    • Handle: RePEc:taf:rseexx:v:30:y:2006:i:1:p:147-160
    DOI: 10.1080/10800379.2006.12106404
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