Does hedging increase firm performance? An empirical analysis of the shipping industry

Sammanfattning: In this study, we analyze the hedging activities for risk management purposes of 31 shipping companies headquartered in Europe and North America and its impact on ROIC, in the period between 2009 and 2014. We also study how ROIC interacts with hedging and investments undertaken by the firms in our sample. If some of the assumptions of the Modigliani & Miller (1958) framework are relaxed, hedging could be beneficial for companies. Given the large exposure to commodities volatility such as oil and bunker fuel, the shipping industry provides a potential benefit of using bunker fuel derivatives. Our results showed no evidence that hedging fuel costs has any statistically significant effect on ROIC. Regarding the interaction between investing and fuel costs and its effect on ROIC we found that bunker fuel prices are negatively related to capital expenditures. More importantly, our results showed that among shipping firms that engaged in fuel hedging, higher capital spending contributed positively to ROIC. Furthermore, our univariate results displayed that fuel cost hedgers had lower operating cash flow volatility and EBIT margin volatility. Fuel cost hedgers were also larger and less levered.