The Impact of Managerial Ownership and Financial Performance on Hedging Decisions

Abstract

Hedging as a derivatives instrument is one of the practices in risk management. The hedging decision, among other things, comprises forwards, futures, options, and swaps. This study analyzes managerial ownership, financial distress, leverage, liquidity, profitability, and company size on hedging decisions. This study was conducted in a mining sector company listed on the IDX in 2016-2020. The samples were 27 listed companies that were selected based on the purposive sampling method. The logistic regression model was implemented to test the hypothesis. The results of this study are as follows: managerial ownership, financial distress, and company size significantly affected hedging decisions; liquidity variables have a significant adverse impact on hedging decisions; other variables, namely leverage, and profitability, do not affect hedging decisions because they are insignificant. This study suggests that the management prefers implementing hedging to reduce future risks.