IDEAS home Printed from https://ideas.repec.org/a/bjc/journl/v11y2024i5p761-774.html
   My bibliography  Save this article

The Influence of Financial Risk Hedging Practices on the Performance and Resilience of Companies Listed on the Zimbabwean Stock Exchange (ZSE)

Author

Listed:
  • Brian Basvi

    (University of Zimbabwe)

Abstract

Businesses are more vulnerable to a range of hazards in the dynamic and demanding business environment, particularly due to unfavourable changes in the macroeconomic landscape and heightened competition. Businesses that operate in such an unstable environment are primarily susceptible to financial risk. Many businesses in Zimbabwe are currently losing money as a result of improper hedging and expensive procedures used to reduce these risks. Massive companies in Zimbabwe recorded losses of 25.7 billion USD and 262.3 million USD respectively in 2023. These losses were attributed to improper hedging methods. Therefore, the purpose of this study was to look into how financial risk hedging strategies affected ZSE firms’ performance. The research had four main goals: to determine how foreign exchange hedging practices affect listed firms’ performance at the ZSE; to investigate the impact of commodity price hedging practices; to assess the impact of interest rate hedging practices; and to investigate the impact of equity risk hedging practices. The quantitative data that was gathered for the study was analysed using both descriptive and inferential statistics. The average distribution and variance were measured in the descriptive analysis by the study using the mean and standard deviation respectively. A multiple regression model was used in the inferential statistics. Using a regression model, the researcher was able to examine how different performance was depending on whether foreign exchange, interest rate, and commodity price risks were hedged using futures, forwards, options, or swaps. For the last five years, from 2019 to 2023, information on the return on invested capital (ROIC) and return on assets (ROA) was gathered from the company’s financial statements. A slightly high degree of influence was indicated by the mean score of the study variables which included equity hedging practices (mean=3.9369), central bank controls (mean=3.9922), commodity pricing risk hedging practices (mean=3.8693), interest rate risk hedging practices (mean=3.6406), and foreign exchange hedging practices (mean=3.6311). The study found a favourable correlation between listed firms’ performance, the moderator (central bank controls), and their hedging activities. When the moderator variable (central bank controls) was included in the model regress, the study’s R2 increased from 0.391 to 0.617.

Suggested Citation

  • Brian Basvi, 2024. "The Influence of Financial Risk Hedging Practices on the Performance and Resilience of Companies Listed on the Zimbabwean Stock Exchange (ZSE)," International Journal of Research and Scientific Innovation, International Journal of Research and Scientific Innovation (IJRSI), vol. 11(5), pages 761-774, May.
    • Handle: RePEc:bjc:journl:v:11:y:2024:i:5:p:761-774
    as

    Download full text from publisher

    File URL: https://www.rsisinternational.org/journals/ijrsi/digital-library/volume-11-issue-5/761-774.pdf
    Download Restriction: no
    File URL: https://rsisinternational.org/journals/ijrsi/articles/the-influence-of-financial-risk-hedging-practices-on-the-performance-and-resilience-of-companies-listed-on-the-zimbabwean-stock-exchange-zse/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. David A. Carter & Daniel A. Rogers & Betty J. Simkins, 2006. "Does Hedging Affect Firm Value? Evidence from the US Airline Industry," Financial Management, Financial Management Association, vol. 35(1), Spring.
    2. Miss Eva Gutierrez, 2003. "Inflation Performance and Constitutional Central Bank Independence: Evidence From Latin America and the Caribbean," IMF Working Papers 2003/053, International Monetary Fund.
    3. Adam, Tim R. & Fernando, Chitru S., 2006. "Hedging, speculation, and shareholder value," Journal of Financial Economics, Elsevier, vol. 81(2), pages 283-309, August.
    4. Fauver, Larry & Naranjo, Andy, 2010. "Derivative usage and firm value: The influence of agency costs and monitoring problems," Journal of Corporate Finance, Elsevier, vol. 16(5), pages 719-735, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mohamed Mnasri & Georges Dionne & Jean-Pierre Gueyie, 2013. "The Maturity Structure of Corporate Hedging: the Case of the U.S. Oil and Gas Industry," Cahiers de recherche 1337, CIRPEE.
    2. Hsin, Chin-Wen & Chang, Feng-Yi & Shiah-Hou, Shin-Rong, 2024. "Performance of financial hedging and earnings management under diverse corporate information quality," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 782-810.
    3. Lau, Chee Kwong, 2016. "How corporate derivatives use impact firm performance?," Pacific-Basin Finance Journal, Elsevier, vol. 40(PA), pages 102-114.
    4. Dionne, Georges & Mnasri, Mohamed, 2018. "Real implications of corporate risk management: Evidence from U.S. oil producers," Working Papers 18-5, HEC Montreal, Canada Research Chair in Risk Management.
    5. Bessler, Wolfgang & Conlon, Thomas & Huan, Xing, 2019. "Does corporate hedging enhance shareholder value? A meta-analysis," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 222-232.
    6. Chaudhry, Neeru & Gupta, Aastha, 2023. "Do derivatives benefit shareholders? Evidence from India," Finance Research Letters, Elsevier, vol. 55(PB).
    7. Dionne, Georges & Gueyie, Jean-Pierre & Mnasri, Mohamed, 2018. "Dynamic corporate risk management: Motivations and real implications," Journal of Banking & Finance, Elsevier, vol. 95(C), pages 97-111.
    8. Mnasri, Mohamed & Dionne, Georges & Gueyie, Jean-Pierre, 2013. "How do firms hedge risks? Empirical evidence from U.S. oil and gas producers," Working Papers 13-3, HEC Montreal, Canada Research Chair in Risk Management.
    9. Ahmed, Shamim & Judge, Amrit & Mahmud, Syed Ehsan, 2018. "Does derivatives use reduce the cost of equity?," International Review of Financial Analysis, Elsevier, vol. 60(C), pages 1-16.
    10. Fernando, Chitru S. & Hoelscher, Seth A. & Raman, Vikas, 2020. "The informativeness of derivatives use: Evidence from corporate disclosure through public announcements," Journal of Banking & Finance, Elsevier, vol. 114(C).
    11. Markus Hang & Jerome Geyer‐Klingeberg & Andreas W. Rathgeber & Stefan Stöckl, 2021. "Rather complements than substitutes: Firm value effects of capital structure and financial hedging decisions," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 4895-4917, October.
    12. Alexandridis, George & Chen, Zhong & Zeng, Yeqin, 2021. "Financial hedging and corporate investment," Journal of Corporate Finance, Elsevier, vol. 67(C).
    13. McCarthy, Scott & Oliver, Barry & Song, Sizhe, 2017. "Corporate social responsibility and CEO confidence," Journal of Banking & Finance, Elsevier, vol. 75(C), pages 280-291.
    14. Bachiller, Patricia & Boubaker, Sabri & Mefteh-Wali, Salma, 2021. "Financial derivatives and firm value: What have we learned?," Finance Research Letters, Elsevier, vol. 39(C).
    15. Sabri Boubaker & Riadh Manita & Salma Mefteh-Wali, 2022. "Foreign currency hedging and firm productive efficiency," Annals of Operations Research, Springer, vol. 313(2), pages 833-854, June.
    16. Biguri, Kizkitza & Brownlees, Christian & Ippolito, Filippo, 2022. "Corporate hedging and the variance of stock returns," Journal of Corporate Finance, Elsevier, vol. 72(C).
    17. Swidan, Hassan & Merkert, Rico & Kwon, Oh Kang, 2019. "Designing optimal jet fuel hedging strategies for airlines – Why hedging will not always reduce risk exposure," Transportation Research Part A: Policy and Practice, Elsevier, vol. 130(C), pages 20-36.
    18. Choi, Jongmoo Jay & Jiang, Cao, 2009. "Does multinationality matter? Implications of operational hedging for the exchange risk exposure," Journal of Banking & Finance, Elsevier, vol. 33(11), pages 1973-1982, November.
    19. Dionne, Georges & El Hraiki, Rayane & Mnasri, Mohamed, 2023. "Determinants and real effects of joint hedging: An empirical analysis of US oil and gas producers," Energy Economics, Elsevier, vol. 124(C).
    20. Treanor, Stephen D. & Rogers, Daniel A. & Carter, David A. & Simkins, Betty J., 2014. "Exposure, hedging, and value: New evidence from the U.S. airline industry," International Review of Financial Analysis, Elsevier, vol. 34(C), pages 200-211.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bjc:journl:v:11:y:2024:i:5:p:761-774. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dr. Renu Malsaria (email available below). General contact details of provider: https://rsisinternational.org/journals/ijrsi/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.