The Impact of Hedging on Firm Value of Public Non-Bank State-Owned Enterprises

Henny Galla Pradana, Prima Naomi

Abstract


This research aims to find the impact of hedging on State-Owned Enterprise’s (SOEs) value. This research focuses on 14 Public Non-Bank SOEs in Indonesia Stock Exchange. We use quarterly data from 2011 to 2015, and panel data analysis. The basic model of research refers to the Junior & Laham models (2008) as well as the development of a model for correcting endogenity factors conducted by Allayanis & Weston (2001). The results showed that only five of the fourteen SOEs that use hedging instrument. The research findings show that the average hedging firm value has a higher than a firm that does not do it. A more detailed investigation found that the adoption of hedging strategies could increase the value of the firm, and the dislocation of the hedging strategy had a negative effect on the value of the firm, compared to firms that continued to implement the strategy. The magnitude of hedging as measured using the Total Notional Value of Derivative to Total Assets (TNVD) also had a positive impact on the fim value. This finding also supports Bank Indonesia Regulation Number 15/8/PBI/2013 which is effective in reducing exchange rate risk for SOEs which in turn increase the value of the firm.

 


Keywords


Derivative; Firm Value; Hedging; Total Notional Value of Derivative to Total Asset

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