RELATIONSHIP BETWEEN FIRM SIZE, FINANCIAL DISTRESS, AND MANAGERIAL OWNERSHIP ON HEDGING DECISION: AN EMPIRICAL STUDY IN INDONESIA
Abstract
International trade transactions influence globalization of economic activities. A company's strategy to mitigate risks due to fluctuations in foreign exchange is hedging using derivative instruments. The purpose of this study is to determine the effect of company size, financial distress, and managerial ownership on hedging decision-making factors using derivative instruments in consumer goods industry manufacturers listed on the Indonesia Stock Exchange during 2015-2019. This research uses a quantitative approach and associative methodology. The set of data used in this study was 160 company-years of observation, with 32 companies registered as the sample using the purposive sampling method over a period of five years. This study uses logistic regression analysis techniques to examine the effect of the relationship between the independent variables and the dependent variable. The results of the study show that the company size and financial distress variables have an effect on hedging decision-making using derivative instruments. The financial distress variable has a positive and significant effect on hedging decision-making with derivative instruments, while managerial ownership has a negative and insignificant effect on hedging decision-making using derivative instruments. Corporate managers should consider taking formal hedging decisions given that the uncertainty of the global economy can sometimes threaten business viability and financial stability.
Keyword : Hedging, Firm Size, Financial Distress, Managerial Ownership
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