Does Hedging Add Value? Evidence from the Global Airline Industry

50 Pages Posted: 18 Feb 2009  

Rueyjian Lin

National Chengchi University (NCCU)

Yuanchen Chang

National Chengchi University - College of Commerce

Date Written: February 13, 2009

Abstract

This paper examines whether jet fuel hedging increases the market value of airline companies around the world. Using a sample of 69 airline companies from 32 countries over the period 1995 to 2005, we find that jet fuel hedging is positively related to market value. This positive relationship holds in the various sub-samples and is significant for US and non-alliance firms. Moreover, our results show that the risk-taking behavior of executives and the tendency to avoid financial distress are important determinants for the jet fuel hedging activities of non-US and non-alliance airline companies. Alleviating the problem of underinvestment is also an important factor to explain the jet fuel hedging activities of US and non-alliance firms. Our results add support to the growing body of literature which finds that hedging increases firm value for global airline companies.

Keywords: Jet fuel hedging, Airline industry, Incentives for hedging

JEL Classification: F30, F31

Suggested Citation

Lin, Rueyjian and Chang, Yuanchen, Does Hedging Add Value? Evidence from the Global Airline Industry (February 13, 2009). Available at SSRN: https://ssrn.com/abstract=1342850 or http://dx.doi.org/10.2139/ssrn.1342850

Rueyjian Lin

National Chengchi University (NCCU) ( email )

No. 64, Chih-Nan Road
Section 2
Wenshan, Taipei, 11623
Taiwan

Yuanchen Chang (Contact Author)

National Chengchi University - College of Commerce ( email )

Taiwan
886229393091-81102 (Phone)
886229393394 (Fax)

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