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Does Hedging Enhance Firm Value? Evidence from the COVID-19 Shock and Industry-Level Differences

Ma, Ruitao LU (2025) NEKP01 20251
Department of Economics
Abstract
This paper examines the effectiveness of corporate derivative hedging during crises and its impact on firm value. The study uses all 500 publicly listed companies in the S&P 500 Index from 2019 to 2024 as the sample, covering the COVID-19 pandemic shock in 2020–2021. This paper uses multiple regression analysis with HC1 heteroskedasticity-robust standard errors to test whether the pandemic shock moderates the relationship between hedging and firm value. It controls firm and industry characteristics, applies propensity score weighting to reduce potential endogeneity, and conducts a VIF test for multicollinearity. The results show a significant negative correlation between hedging and Tobin’s Q, while the pandemic shock has a significant... (More)
This paper examines the effectiveness of corporate derivative hedging during crises and its impact on firm value. The study uses all 500 publicly listed companies in the S&P 500 Index from 2019 to 2024 as the sample, covering the COVID-19 pandemic shock in 2020–2021. This paper uses multiple regression analysis with HC1 heteroskedasticity-robust standard errors to test whether the pandemic shock moderates the relationship between hedging and firm value. It controls firm and industry characteristics, applies propensity score weighting to reduce potential endogeneity, and conducts a VIF test for multicollinearity. The results show a significant negative correlation between hedging and Tobin’s Q, while the pandemic shock has a significant positive effect on Tobin’s Q. The interaction term is insignificant in most models and only shows a marginally significant negative correlation at the 10% level when using Overlap Weights. The industry-level regression results show that the impact of hedging on Tobin’s Q varies significantly across industries. Profitability analysis further reveals a significant negative correlation between hedging and ROA, suggesting that firms hedge primarily for risk management purposes rather than to enhance firm value. (Less)
Please use this url to cite or link to this publication:
author
Ma, Ruitao LU
supervisor
organization
course
NEKP01 20251
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Derivative Hedging, Firm Value, COVID-19 Pandemic, Industry Heterogeneity, Tobin’s Q
language
English
id
9211203
date added to LUP
2025-09-12 11:13:47
date last changed
2025-09-12 11:13:47
@misc{9211203,
  abstract     = {{This paper examines the effectiveness of corporate derivative hedging during crises and its impact on firm value. The study uses all 500 publicly listed companies in the S&P 500 Index from 2019 to 2024 as the sample, covering the COVID-19 pandemic shock in 2020–2021. This paper uses multiple regression analysis with HC1 heteroskedasticity-robust standard errors to test whether the pandemic shock moderates the relationship between hedging and firm value. It controls firm and industry characteristics, applies propensity score weighting to reduce potential endogeneity, and conducts a VIF test for multicollinearity. The results show a significant negative correlation between hedging and Tobin’s Q, while the pandemic shock has a significant positive effect on Tobin’s Q. The interaction term is insignificant in most models and only shows a marginally significant negative correlation at the 10% level when using Overlap Weights. The industry-level regression results show that the impact of hedging on Tobin’s Q varies significantly across industries. Profitability analysis further reveals a significant negative correlation between hedging and ROA, suggesting that firms hedge primarily for risk management purposes rather than to enhance firm value.}},
  author       = {{Ma, Ruitao}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Does Hedging Enhance Firm Value? Evidence from the COVID-19 Shock and Industry-Level Differences}},
  year         = {{2025}},
}