Why do firms hedge? a revisit for an emerging market perspective
This study explores the determinants of hedging practices, focusing on foreign exchange exposure within 250 listed Malaysian firms. Aligned with the theory of underinvestment costs, a positive correlation between foreign exchange exposure and hedging is established. Firms with higher exposure di...
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| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Penerbit Universiti Kebangsaan Malaysia
2024
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| Online Access: | http://journalarticle.ukm.my/23904/1/Pengurusan_70_3.pdf http://journalarticle.ukm.my/23904/ https://www.ukm.my/jurnalpengurusan/view-articles/ |
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| Summary: | This study explores the determinants of hedging practices, focusing on foreign exchange exposure within 250
listed Malaysian firms. Aligned with the theory of underinvestment costs, a positive correlation between foreign
exchange exposure and hedging is established. Firms with higher exposure display an increased propensity for
hedging contracts, and the COVID-19 pandemic significantly impacts these practices. Quantile regression
analysis reveals that heightened foreign exchange exposure induces Malaysian firms to intensify hedging,
particularly in lower and middle distribution percentiles. Additionally, the study highlights the impact of growth
opportunities on the intricate relationship between foreign exchange exposure and hedging practices.
Implications include strategic consideration of foreign cash flow-based exposure in hedging decisions,
recognizing hedging as pivotal during crises, and acknowledging the motivating role of growth opportunities in
fostering increased hedging within a corporate framework. |
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