Evidence on the Determinants of Corporate Hedging in UK

This work provides empirical evidence on the determinants of corporate hedging using nonsurvey data for UK companies. Data on hedging are obtained from disclosures made in financial statement footnotes by 443 companies subject to UK accounting rules. Evidence is consistent with hypotheses of firms hedging because of costly financial distress and of scale economies of using derivatives. Evidence is mixed with respect to underinvestment incentives and weak with tax incentives to hedge. Evidence also suggests that holding cash is the best substitute for financial derivatives and that managerial ownership does not directly affect the likelihood to hedge