We thank Yiorgos Allayannis, Greg Brown, and particularly Clifford W. Smith Jr. (the referee) for helpful comments and suggestions. Söhnke Bartram gratefully acknowledges the warm hospitality of the Financial Markets Group at the London School of Economics and the Kiel Institute for the World Economy during a visit to these institutions as well as research funding by METEOR.
CORPORATE HEDGING AND SHAREHOLDER VALUE
Version of Record online: 29 DEC 2010
© 2010 The Southern Finance Association and the Southwestern Finance Association
Journal of Financial Research
Volume 33, Issue 4, pages 317–371, Winter 2010
How to Cite
Aretz, K. and Bartram, S. M. (2010), CORPORATE HEDGING AND SHAREHOLDER VALUE. Journal of Financial Research, 33: 317–371. doi: 10.1111/j.1475-6803.2010.01278.x
- Issue online: 29 DEC 2010
- Version of Record online: 29 DEC 2010
Although theory suggests that corporate hedging can increase shareholder value in the presence of capital market imperfections, empirical studies show overall mixed support for rationales of hedging with derivatives. Although various empirical challenges and limitations advise some caution with regard to the interpretation of the existing evidence, the results are consistent with derivatives use being just one part of a broader financial strategy that considers the type and level of financial risks, the availability of risk management tools, and the operating environment of the firm. Moreover, corporations rely heavily on pass-through, operational hedging, and foreign currency debt to manage financial risk.