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Why Do Firms Hedge? A Review of the Evidence

  • Chapter
Issues in Finance and Monetary Policy

Abstract

The academic debate on the merits of hedging has identified five main theoretical rationales for corporate hedging:

  1. (a)

    to minimize corporate tax liability;

  2. (b)

    to reduce the expected costs of financial distress;

  3. (c)

    to ameliorate conflicts of interest between shareholders and bondholders;

  4. (d)

    to improve co-ordination between financing and investment policy;

  5. (e)

    to maximize the value of the manager’s wealth portfolio.

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Authors
  1. Amrit Judge
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Editor information

Editors and Affiliations

  1. University of Cambridge, UK

    John McCombie (Director of the Centre for Economic and Public Policy, Fellow in Economics) (Director of the Centre for Economic and Public Policy, Fellow in Economics)

  2. Downing College, Cambridge, UK

    John McCombie (Director of the Centre for Economic and Public Policy, Fellow in Economics) (Director of the Centre for Economic and Public Policy, Fellow in Economics)

  3. University of the Basque Country, Spain

    Carlos Rodríguez González PhD (Lecturer in Economics) (Lecturer in Economics)

Copyright information

© 2007 Amrit Judge

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Cite this chapter

Judge, A. (2007). Why Do Firms Hedge? A Review of the Evidence. In: McCombie, J., González, C.R. (eds) Issues in Finance and Monetary Policy. Palgrave Macmillan, London. https://doi.org/10.1057/9780230801493_7

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