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Why Do Firms Hedge? A Review of the Evidence

In: Issues in Finance and Monetary Policy

Author

Listed:
  • Amrit Judge

Abstract

The academic debate on the merits of hedging has identified five main theoretical rationales for corporate hedging: (a) to minimize corporate tax liability; (b) to reduce the expected costs of financial distress; (c) to ameliorate conflicts of interest between shareholders and bondholders; (d) to improve co-ordination between financing and investment policy; (e) to maximize the value of the manager’s wealth portfolio.

Suggested Citation

  • Amrit Judge, 2007. "Why Do Firms Hedge? A Review of the Evidence," Palgrave Macmillan Books, in: John McCombie & Carlos Rodríguez González (ed.), Issues in Finance and Monetary Policy, chapter 7, pages 128-152, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-80149-3_7
    DOI: 10.1057/9780230801493_7
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    Citations

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    Cited by:

    1. Hecht, Andreas, 2017. "On the determinants of speculation - a case for extended disclosures in corporate risk management," Hohenheim Discussion Papers in Business, Economics and Social Sciences 15-2017, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    2. Geyer-Klingeberg, Jerome & Hang, Markus & Rathgeber, Andreas W., 2019. "What drives financial hedging? A meta-regression analysis of corporate hedging determinants," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 203-221.
    3. Jerome Geyer-Klingeberg & Markus Hang & Andreas W. Rathgeber & Stefan Stöckl & Matthias Walter, 2018. "What do we really know about corporate hedging? A meta-analytical study," Business Research, Springer;German Academic Association for Business Research, vol. 11(1), pages 1-31, February.
    4. Sanda, Gaute Egeland & Olsen, Eirik Tandberg & Fleten, Stein-Erik, 2013. "Selective hedging in hydro-based electricity companies," Energy Economics, Elsevier, vol. 40(C), pages 326-338.
    5. David De Angelis & S. Abraham Ravid, 2017. "Input Hedging, Output Hedging, and Market Power," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(1), pages 123-151, February.

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