The determinants of selective hedging : Evidence from German non-financial corporations

Survey studies on corporate risk management show that firms follow very diverse riskmanagement strategies. The observed behavior is difficult to reconcile with establishedhedging theories and with the standard procedure for testing them. The present paper wants tolink the discussion on risk management theories more closely to the observed firm behaviour.The paper is based on a survey study on the risk management of German non-financial firms.Like previous studies, we find that a majority of firms follow profit-oriented, forecast-basedhedging strategies. We adapt the existing hedging theories in order to explain which firms arelikely to adopt selective or speculative risk management strategies. Multiple logisticregression analysis is applied in order to test the hypotheses. The proposed model is able toexplain the firms' choice of foreign exchange risk strategies reasonably well. Highly leveredfirms are less likely to take bets in the currency markets...