Which corporate hedging motives are appropriate? An institutional shareholders' perspective

This note presents some empirical evidence on the hedging motives that institutional investors consider to be appropriate for firms. Our results indicate that in some cases, the views of institutional investors are similar to those of the treasury managers of UK multinational companies (MNCs). However, we found other important cases where the views of institutional investors differ from the hedging practices of firms. For example, institutional investors place a strong degree of importance on the hedging motive that is associated with financial distress. This result contrasts with earlier evidence from MNCs themselves. Our findings have important implications for theoretical work that is associated with agency considerations and the extent to which the firm communicates its financial policies to investors. Copyright (C) 2000 John Wiley and Sons, Ltd.