The economic determinants of corporate hedging: an empirical analysis of UK non-financial firms

Judge, Amrit (2001) The economic determinants of corporate hedging: an empirical analysis of UK non-financial firms. Doctoral thesis, London Guildhall University.


This thesis attempts to differentiate among the theories of corporate hedging by using UK corporate level data for the first time. The UK provides a particularly valuable focus for empirical investigation since it has a large and sophisticated corporate sector. Additionally UK firms have become more exposed to financial risk because of the increasing level of debt type commitments, expanding international operations and the growth in price volatility in the world's commodities markets. Lack of a consensus on the economic effects of corporate hedging as well as the limited research on this issue in the UK intrigued the author and led to this research into whether the UK evidence supports theories that imply risk management enhances shareholder wealth.

In this way the thesis contributes to an ongoing debate in the literature and provides a valuable additional case study. It provides a further contribution by giving insights into the determinants of hedging across exposure categories. One of the main contributions of this study is that the evidence presented suggests that the conflicts between the results of this study and those of previous studies focusing on the hedging of specific exposures can be explained by the treatment of other hedgers in non-hedging samples.

In undertaking this analysis, a systematic empirical approach is taken which employs essentially four different econometric methodologies: a logit analysis, a multinomial logit analysis, a tobit analysis and a two step estimation process incorporating probit and truncated regression analysis.

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