Why Do Firms (Not) Hedge? -- Novel Evidence on Cultural Influence

Posted: 20 Nov 2013 Last revised: 6 Dec 2013

See all articles by Martin Lievenbrueck

Martin Lievenbrueck

Independent

Thomas Schmid

The University of Hong Kong - Faculty of Business and Economics

Date Written: October 24, 2013

Abstract

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

Suggested Citation

Lievenbrueck, Martin and Schmid, Thomas, Why Do Firms (Not) Hedge? -- Novel Evidence on Cultural Influence (October 24, 2013). Journal of Corporate Finance, Vol. 25, 92-106. Available at SSRN: https://ssrn.com/abstract=2356173

Martin Lievenbrueck

Independent ( email )

No Address Available
United States

Thomas Schmid (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

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