Determinants of Hedging: A Reveiw of Theoretical Studies

Abdullah Bin Omar, Kamarun Nisham B Taufil Mohammad, Norzalina Binti Ahmad


Hedging instruments are deemed as value enhancing tool for both financial and nonfinancial firms. The aim of this study is to highlight those theoretical studies which are written in context of hedging determinants. Theoretical studies argued that in a world with no taxes, no transaction costs, and with fixed investment policies, hedging with derivatives is irrelevant to firm value. However, some studies suggests that derivative instruments can increase firm value when the premises of a perfect market have been relaxed, since they can eliminate corporate tax liabilities, financial distress costs, dependence on costly external financing, and agency costs.

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This work is licensed under a Creative Commons Attribution 4.0 International License.

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.