Determinants of Hedging: An Empirical Investigation for Mauritius

Abstract:     
This paper attempts to fill an important gap in the empirical literature pertaining to the determinants of hedging by focusing on an upper-income developing country, Mauritius. Indeed, earlier empirical evidences on hedging were mainly based on advanced economies with little emphasis on developing countries. From the data on Mauritian firms for the year 2005-06, it transpires that managers’ incentives to hedge and tax convexity motive to hedge, along with financial and operational explanations underlying hedging, are basically not applicable in Mauritius. The size and age of firms are found to be positively related to hedging, endorsing the fact that high fixed costs and knowledge in establishing a derivative framework are important.

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