Why Do Firms (Not) Hedge? -- Novel Evidence on Cultural Influence
Posted: 20 Nov 2013 Last revised: 6 Dec 2013
Date Written: October 24, 2013
We examine whether cultural differences between countries help explaining firms' hedging decisions. For this, we manually collect data on the hedging behavior of worldwide energy utilities. The analysis reveals a strong impact of a country's long-term orientation, which reduces the probability for hedging and the hedged volume. The only other factor with a consistently higher economic impact is firm size. Furthermore, hedging with options is less common in countries with a high level of masculinity. Overall, the results reveal that culture has a strong impact on the hedging behavior of firms. This influence is not captured by other country-specific factors such as economic development or the legal framework.
Keywords: hedging, derivatives, risk management, culture, energy utilities
JEL Classification: G32
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