The Motives for Corporate Hedging among UK Multinationals

This study employs questionnaire survey and financial data to assess the extent to which the motives for corporate hedging among UK multinational corporations (MNCs) are consistent with existing theories. Corporate treasury managers’ perceptions of (1) stakeholders’ attitudes to risk and (2) the behaviour of financial markets are also examined. The results indicate that the primary motive for corporate hedging is to minimize the impact of foreign exchange (FX) rate fluctuation on operational cash flow. Motives which relate to the extra compensation required by bondholders and substantial guarantees required by customers and suppliers for bearing FX risk have minor impacts on hedging decisions. The study also examines the extent to which the motives emphasized by firms have impacts on the variability of specific financial variables as well as on non-financial variables. Our results indicate some consistency with the emphasis firms place on certain hedging motives and the expected impacts on those variables. In some instances however, the impacts might be considered to be in the wrong direction.