Does Corporate Hedging Enhance Shareholder Value? A Meta-Analysis

Download or read book Does Corporate Hedging Enhance Shareholder Value? A Meta-Analysis written by Wolfgang Bessler and published by . This book was released on 2019 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: The theories underpinning corporate use of derivatives are well developed. Furthermore, there exist compelling economic reasons why hedging should lead to enhanced shareholder value, but empirical evidence in support of a substantial value increase from hedging is, at best, mixed. In this paper, we synthesize the empirical evidence for value enhancement in firms' hedging with derivatives using a statistical meta-analysis combining data from 47 different studies. Our findings indicate that firms' hedging with derivatives have larger Tobin's Q, a commonly used measure of value creation. A variety of moderating variables are assessed, providing evidence of heterogeneity in the value relevance of corporate hedging. In particular, we find that relatively higher firm value is primarily associated with hedging of foreign exchange risk.