Does Corporate Hedging Enhance Shareholder Value? A Meta-Analysis
35 Pages Posted: 19 Dec 2018 Last revised: 21 Feb 2019
Date Written: September 21, 2018
The theories underpinning corporate use of derivatives are well developed. Furthermore, there exist compelling economic reasons why hedging should lead to enhanced shareholder value, but empirical evidence in support of a substantial value increase from hedging is, at best, mixed. In this paper, we synthesize the empirical evidence for value enhancement in firms’ hedging with derivatives using a statistical meta-analysis combining data from 47 different studies. Our findings indicate that firms’ hedging with derivatives have larger Tobin’s Q, a commonly used measure of value creation. A variety of moderating variables are assessed, providing evidence of heterogeneity in the value relevance of corporate hedging. In particular, we find that relatively higher firm value is primarily associated with hedging of foreign exchange risk.
Keywords: Corporate Hedging, Derivatives, Firm Value, Meta Analysis
JEL Classification: G3, G32
Suggested Citation: Suggested Citation