Corporate hedging and firm value. Can corporate hedging increase firm value?
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Finance theory indicates that corporate hedging can increase firm value by reducing costs of taxes, financial distress and agency costs, and by reducing cash flow volatility. This paper covers both a direct effect of corporate hedging on firm value, as well as the effect of corporate hedging on stock price return volatility. A panel data sample of 53 U. S. firms with quarterly data for 5 consecutive years is used to research the effect of hedging on firm value and stock price return volatility. Using a OLS-regression I find that hedging has no significant effect on stock price return volatility. I also find very limited support for the hypothesis that hedging increases firm value. Overall I find limited support for positive effects of corporate hedging for the firms in the sample.
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