Why Do Firms Engage in Selective Hedging? Evidence from the Gold Mining Industry

44 Pages Posted: 5 Jun 2015  

Tim Adam

Humboldt University

Chitru S. Fernando

University of Oklahoma - Michael F. Price College of Business

Jesus M. Salas

Lehigh University

Date Written: June 3, 2015

Abstract

The widespread practice of managers speculating by incorporating their market views into firms’ hedging programs (“selective hedging”) remains a puzzle. Using a 10-year sample of North American gold mining firms, we find no evidence that selective hedging is more prevalent among firms that are believed to possess an information advantage. In contrast, we find strong evidence that selective hedging is more prevalent among financially constrained firms, suggesting that this practice is driven by asset substitution motives. We detect weak relationships between selective hedging and some corporate governance measures but find no evidence of a link between selective hedging and managerial compensation.

Keywords: Corporate risk management, selective hedging, speculation, financial distress, corporate governance, managerial compensation

JEL Classification: G11; G14; G32; G39

Suggested Citation

Adam, Tim and Fernando, Chitru S. and Salas, Jesus M., Why Do Firms Engage in Selective Hedging? Evidence from the Gold Mining Industry (June 3, 2015). Available at SSRN: https://ssrn.com/abstract=2613920 or http://dx.doi.org/10.2139/ssrn.2613920

Tim Adam

Humboldt University ( email )

Dorotheentr. 1
Berlin, Berlin 10099
Germany
+49 (0)30 2093-5641 (Phone)
+49 (0)30 2093-5643 (Fax)

Chitru S. Fernando (Contact Author)

University of Oklahoma - Michael F. Price College of Business ( email )

Adams Hall
307 West Brooks Street
Norman, OK 73019-4004
United States
405-325-2906 (Phone)
405-325-7688 (Fax)

HOME PAGE: http://faculty-staff.ou.edu/F/Chitru.Fernando-1/

Jesus M. Salas

Lehigh University ( email )

Bethlehem, PA 18015
United States
610-758-3238 (Phone)

HOME PAGE: http://www3.lehigh.edu/business/faculty/salas.asp

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