Why do firms (not) hedge? - Novel evidence on cultural influence

- We analyze the impact of culture on firms' hedging behavior.
- We consider the decision to hedge, the hedged volume, and the hedging instruments.
- Analyzing energy utilities ensures that all firms are exposed to FX/IR/CO risk.
- We find that more long-term orientation reduces hedging activities.
- Furthermore, higher masculinity leads to less usage of asymmetric instruments.

We examine whether cultural differences between countries help in explaining firms' hedging decisions. For this, we manually collect data on the hedging behavior of worldwide energy utilities. The analysis reveals a strong impact of a country's long-term orientation, which reduces the probability for hedging and the hedged volume. The only other factor with a consistently higher economic impact is firm size. Furthermore, hedging with options is less common in countries with a high level of masculinity. Overall, the results reveal that culture has a strong impact on the hedging behavior of firms. This influence is not captured by other country-specific factors such as economic development or the legal framework.