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Evidence on Corporate Hedging Policy

Published online by Cambridge University Press:  06 April 2009

Shehzad L. Mian
Shehzad L. Mian
Affiliation:
Goizueta Business School, Emory University, Atlanta, GA 30322
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Abstract

This paper provides empirical evidence on the determinants of corporate hedging decisions. The paper examines the evidence in light of currently mandated financial reporting requirements and, in particular, the constraints placed on anticipatory hedging. Data on hedging are obtained from 1992 annual reports for a sample of 3,022 firms. Out of the 771 firms classified as hedgers, 543 firms disclose information in their annual reports on their hedging activities; the remaining 228 firms report use of derivatives but no information on hedging activities. Based on the evidence, I draw the following conclusions with respect to the models of hedging: evidence is inconsistent with financial distress cost models; evidence is mixed with respect to contracting cost, capital market imperfections, and tax-based models; and evidence uniformly supports the hypothesis that hedging activities exhibit economies of scale.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 31 , Issue 3 , September 1996 , pp. 419 - 439
Copyright
Copyright © School of Business Administration, University of Washington 1996

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