Determinants of corporate hedging decision: Evidence from Croatian and Slovenian companies

This paper presents the research results on determinants of corporate risk management decisions in large Croatian and Slovenian non-financial companies. Research has revealed that the explored hedging rationales have little predictive power in explaining corporate risk management decisions both in Croatian and Slovenian companies. The evidence based on both univariate and multivariate empirical relations between the decision to hedge in Croatian non-financial companies and financial distress costs, agency costs, costly external financing, taxes, managerial utility and hedge substitutes, fails to provide any support for any of the tested hypotheses but one – costly external financing measured by investment expenditures-to-assets ratio. The same analysis conducted for the Slovenian companies has shown that there is no statistically significant explanatory variable for the decision to hedge; therefore it is not dependent on any of the predicted theories of hedging.