CAN HEDGING AFFECT FIRM VALUE? AN OIL, GAS AND MINING PERSPECTIVE

Date created
2013-12-17
Authors/Contributors
Abstract
Our paper investigates the impact of financial hedging on the firm value of a sample of mining, oil and gas companies that are publicly listed on the Toronto Stock Exchange.Employing a Tobin’s Q model for the sample of companies, the study finds that hedging does not significantly affect a firm’s valuation while other financial factors impact it in a statistically and economically significant manner. The results add further evidence to the current research literature that has reported contradictory empirical findings from prior research.Our observations are consistent with the school of thought that the firm valuation effect associated with hedging is insignificant. In these resource sectors, commodity price exposure is transparent and easy to hedge by investors, so there is no reason to expect that oil, gas and mining companies hedging their production price risk(s) should have higher firm values.
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MSc in Finance Project-Simon Fraser University
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Carlos daCosta and Jaspal Singh.pdf 730.22 KB