Determinants of corporate hedging: A (statistical) meta-analysis

• We synthesize data of empirical studies via statistical meta-analysis.
• Our results imply that financial distress costs induce firms to hedge.
• We find weak evidence that the underinvestment problem influences hedging behavior.
• Taxes and agency conflicts do not show explanatory power.

While literature provides several hedging theories, evidence on the corporate incentives to hedge remains ambiguous. We synthesize data of empirical studies via statistical meta-analysis to test different hedging hypotheses. To our knowledge, this constitutes the first application of such a methodology in financial economics. Our results imply that financial distress costs induce firms to hedge. We find weak evidence that the underinvestment problem and the dependence on costly external financing influence hedging behavior. Taxes and agency conflicts do not show explanatory power. Because statistical and narrative reviews yield different outcomes, we see various other application possibilities for meta-analysis in financial economics.