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Determinants of Financial Hedging Strategies among Commodity Producer Firms in Latin America

Author

Listed:
  • Giraldo, Carlos

    (Latin American Reserve Fund)

  • Giraldo, Iader

    (Latin American Reserve Fund)

  • Huertas, Cristian

    (Universidad Nacional de Colombia)

  • Sánchez, Juan Camilo

    (Dirección de impuestos y aduanas nacionales)

Abstract

This study investigates the determinants of hedging practices among commodity-producing companies in Latin America. The extractive sector's significant economic importance in the region makes understanding these firms' hedging decisions highly relevant. The findings reveal several key insights. Firm size, leverage, and commodity prices are important factors consistent with prior research. Additionally, the region's exchange rate exposure means that firms' acquisition of US dollar-denominated debt is a significant determinant of their hedging activities, as well as the firms’ access to the international markets. Notably, the type of ownership also significantly impacts hedging, as state-owned firms are more likely to hedge to reduce volatility in their revenues for the case of oil-firms. In contrast to the limited research on Latin American extractive firms, an extensive literature has explored hedging strategies in developed countries' extractive companies. This study aims to address the gap by investigating the determinants of hedging practices among commodity-producing companies in Latin America.

Suggested Citation

  • Giraldo, Carlos & Giraldo, Iader & Huertas, Cristian & Sánchez, Juan Camilo, 2024. "Determinants of Financial Hedging Strategies among Commodity Producer Firms in Latin America," Documentos de trabajo 21196, FLAR.
    • Handle: RePEc:col:000566:021196
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    References listed on IDEAS

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    More about this item

    Keywords

    hedging; risk management; derivatives; commodity-producing companies;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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