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What Factors Drive Hedging Among Mauritian Firms?

  • Indranarain Ramlall
Chapter

Abstract

This chapter fills a vital gap when it comes to assessing the drivers behind hedging in Mauritius. It is widely acknowledged by both practitioners and academicians that knowledge about derivatives’ use constitutes a major hurdle in their use. Prior empirical evidence on hedging is chiefly focused on developed countries with little being understood about the situation in developing countries. Using data for the period 2005–06, findings clearly show that managers’ incentives to hedge, the tax convexity motive to hedge along with financial and operational explanations underlying hedging, are not applicable to the Mauritian context. Important drivers for hedging are found to be a composition of the size and age of firms, buttressing the notion that high fixed costs and knowledge about derivatives act as the main propelling forces for a derivatives framework. These findings suggest that larger firms are the ones most susceptible to use derivatives. Consequently, smaller firms, though subject to currency risk, are less susceptible to endorse sound risk management programmes. The government is therefore advised to establish a derivatives house whereby smaller firms can have the possibility to hedge as per their size so that currency risk impacts are well contained in the economy.

Keywords

Corporate Governance Total Asset Foreign Currency Local Firm Currency Risk 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© The Author(s) 2017

Authors and Affiliations

  • Indranarain Ramlall
    • 1
  1. 1.University of MauritiusMokaMauritius

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