Impact of Foreign Exchange Exposure and Syariah-Compliant Status on Firms' Decision to Practice Hedging

This study investigated the impact of foreign exchange (FX) exposure and Syariah-compliant status on a firm's decision to practice hedging. The study employed panel multiple logistic and panel multinomial logistic regression on 792 firm-year observations from 132 non-financial listed firms over the period of 2010 to 2015. In addition, 74 to 85 percent of firm population (for 2010 - 2015) in Bursa Malaysia, possess Syariah- compliant status. The panel multiple logistic results postulate that total FX currency exposure and the number of invoicing currencies are significant factors in determining hedging practice, with an odds ratio of 1.603 and 1.664, respectively. Meanwhile, the impact of Syariah-compliant status on hedging practice was insignificant with an odds ratio of 0.915, somewhat consistent with prediction. Using multinomial logistic regression, this study conducted a detailed examination into firms that practice hedging. FX exposure is significant in predicting hedging for firms that practice one and two hedging instruments. Surprisingly, Syariah-compliant status is found to always significantly influence firms that hedge, except those using four instruments