Corporate hedging and risk management theory: evidence from Polish listed companies

Abstract

Purpose This paper aims to provide a comprehensive empirical assessment of major contemporary corporate hedging theories, i.e. financial theory, agency theory, stakeholder theory and new institutional economics. Design/methodology/approach Hypotheses regarding the determinants of hedging are tested on a sample of 150 companies listed on the Warsaw Stock Exchange. The panel covers a period of five years (2001‐2005). Unlike in previous research the tests are organised around theories rather than individual hypotheses. In addition to classic tests, CART analysis is used to verify hypotheses. Findings The results show low empirical verification of all theories considered. However, the results support some single hypotheses. Tests identified currency exposure, market‐to‐book value, IT and service sectors and size as being determinants of hedging. Research limitations/implications The results provide evidence for the low usefulness of contemporary theories. New models are needed to explain hedging behaviour more accurately. Practical implications The results identify characteristics shared by firms that use hedging. Companies considering implementing hedging can check whether they share these characteristics. Originality/value This paper adds to risk management research by providing strong empirical evidence of theory verification status. It can serve as a base for future conceptual research.

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