Does Corporate Hedging Enhance Shareholder Value? A Meta-Analysis

35 Pages Posted: 19 Dec 2018 Last revised: 21 Feb 2019

See all articles by Wolfgang Bessler

Wolfgang Bessler

University of Hamburg

Thomas Conlon

University College Dublin

Xing Huan

EDHEC Business School

Date Written: September 21, 2018

Abstract

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.

Keywords: Corporate Hedging, Derivatives, Firm Value, Meta Analysis

JEL Classification: G3, G32

Suggested Citation

Bessler, Wolfgang and Conlon, Thomas and Huan, Xing, Does Corporate Hedging Enhance Shareholder Value? A Meta-Analysis (September 21, 2018). International Review of Financial Analysis, Forthcoming, Michael J. Brennan Irish Finance Working Paper Series Research Paper No. 19-4, Available at SSRN: https://ssrn.com/abstract=3293602 or http://dx.doi.org/10.2139/ssrn.3293602

Wolfgang Bessler

University of Hamburg ( email )

Allende-Platz 1
Hamburg, 20146
Germany

Thomas Conlon (Contact Author)

University College Dublin ( email )

Smurfit Graduate Business School
Blackrock
Co. Dublin, n/a
Ireland

HOME PAGE: http://www.ucd.ie/bankingfinance/staff/drthomasconlon/

Xing Huan

EDHEC Business School ( email )

393 Promenade des Anglais
Nice, Provence-Alpes-Côte d'Azu 06202
France

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