Are Firms Successful at Selectively Hedging?

44 Pages Posted: 24 Apr 2003

See all articles by Gregory W. Brown

Gregory W. Brown

University of North Carolina (UNC) at Chapel Hill - Finance Area

Pete Crabb

Northwest Nazarene University

David Haushalter

Pennsylvania State University - Mary Jean and Frank P. Smeal College of Business Administration

Date Written: February 2003

Abstract

This paper analyzes derivative security positions reflecting the corporate risk management policies of 44 companies from the gold mining industry. We document substantial time-series variation in risk management policies. For most firms, little of this variation in hedge ratios is explained by firm-specific variables suggested by theory. Furthermore, we find a tendency for firms to decrease hedging as prices move against them - behavior contrary to that predicted by risk management theory. These results, as well as survey evidence we collect, indicate that corporate risk management policies are often influenced by attempts to time gold market prices, so-called selective hedging. We find some evidence that firms are successful in timing subsequent changes in gold prices. However, we find no evidence that this practice leads to superior operating or financial performance.

Keywords: Risk Management, Financing Policy, Behavioral Corporate Finance

JEL Classification: G10, G30, G32

Suggested Citation

Brown, Gregory W. and Crabb, Peter R. and Haushalter, David, Are Firms Successful at Selectively Hedging? (February 2003). Available at SSRN: https://ssrn.com/abstract=385169 or http://dx.doi.org/10.2139/ssrn.385169

Gregory W. Brown

University of North Carolina (UNC) at Chapel Hill - Finance Area ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

Peter R. Crabb

Northwest Nazarene University ( email )

623 S University Blvd
Nampa, ID 83686
United States
208 467-8536 (Phone)

David Haushalter (Contact Author)

Pennsylvania State University - Mary Jean and Frank P. Smeal College of Business Administration ( email )

University Park, PA 16802
United States
814-863-7969 (Phone)
814-865-3362 (Fax)

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