IDEAS home Printed from https://ideas.repec.org/a/spr/futbus/v10y2024i1d10.1186_s43093-024-00407-4.html
   My bibliography  Save this article

Does the hedge pay? Assessing natural hedging’s role in firm valuation under varying macroeconomic conditions

Author

Listed:
  • Anureet Saharan

    (Indian Institute of Technology Madras)

  • Madhumathi Rajendran

    (Indian Institute of Technology Madras)

Abstract

This study aims to assess the influence of natural hedging on firm value, incorporating the mediating role of financial derivatives and the moderating impact of macroeconomic variables. Employing partial least square structural equation modeling on data spanning 21,169 firm years (3050 firms) from 2015 to 2022, our analysis discerns significant effects. Natural hedging notably impacts firm value, while the impact on financial derivatives is contingent on the nature of the natural hedging strategy. High transactional involvement renders the relationship complementary, while a strategy with fewer and flexible transactions signifies a substitutive relation. An inflexible, cash flow-specific natural hedging strategy, such as foreign debt, can be mutually exclusive with financial derivatives when the cash inflow in foreign currency matches perfectly with interest payments. However, in subsequent periods, when the nature of cash inflows changes, this relationship can become complementary, allowing for the integration of financial derivatives to fine-tune and enhance the overall hedging strategy. Macroeconomic fluctuations do not moderate the relationship between natural hedging and firm value within the same period. Instead, the impact is moderated by GDP growth rates in subsequent periods.

Suggested Citation

  • Anureet Saharan & Madhumathi Rajendran, 2024. "Does the hedge pay? Assessing natural hedging’s role in firm valuation under varying macroeconomic conditions," Future Business Journal, Springer, vol. 10(1), pages 1-18, December.
    • Handle: RePEc:spr:futbus:v:10:y:2024:i:1:d:10.1186_s43093-024-00407-4
    DOI: 10.1186/s43093-024-00407-4
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1186/s43093-024-00407-4
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1186/s43093-024-00407-4?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Risk management; Firm value; Hedging premium; Structural equation modeling; PLS-SEM;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    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:spr:futbus:v:10:y:2024:i:1:d:10.1186_s43093-024-00407-4. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    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.