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- Title
Hiding behind the hedge: The relevance of firm value in corporate hedging.
- Authors
Toerien, Eduard; Lambrechts, Hugo
- Abstract
This study examined the effect of hedging with derivatives on the value of a sample of the 40 largest non-financial firms listed on the Johannesburg Stock Exchange (JSE) from 2008 to 2012. It applied a univariate and a multivariate approach to determine the effect of using derivatives on firms' Tobin's Q, performance indicators such as return on assets (ROA) and return on equity (ROE), and indicators of firm value such as economic value added (EVA), market value added (MVA), and the market value of shares. The results of these analyses indicate that the use of derivatives had no significant impact on firm value, but there was a significant association between using derivatives, MVA, and the market value of shares. Previous international studies found divergent results on the effects of derivative hedging strategies on firm value. The findings from this study support those studies that found no value premium, and suggest that hedging with derivatives is not a value-adding strategy for South African firms. Further research is needed to examine the extent and effectiveness of the use of derivatives by firms in South Africa.
- Subjects
SOUTH Africa; HEDGING (Finance); STOCK exchanges; RATE of return; MARKET value added
- Publication
Management Dynamics / Bestuursdinamika, 2016, Vol 25, Issue 2, p41
- ISSN
1019-567X
- Publication type
Article