Skip to main content

Research Repository

Advanced Search

Capital expenditures, corporate hedging and firm value

Ullah, Subhan; Irfan, Muhammad; Kim, Ja Ryong; Ullah, Farid


Associate Professor in Accounting

Muhammad Irfan

Farid Ullah


Despite the well-documented mixed results of hedging on firm value, empirical evidence of why hedging reduces firm value is rare. Theory suggests that hedging can increase firm value by reducing bankruptcy cost and volatility, although it can also decrease firm value through a manager's utility maximization. This study explores the reduction of market dependence and the over-investment hypothesis that results in decreasing firm value. By studying UK domiciled oil and gas companies, we found that capital expenditure accompanied by hedging reduces firm value, although capital expenditure itself increases firm value. This effect is pronounced when capital expenditure is made by firms with foreign operations, suggesting that hedging reduces the effect of the market's monitoring role and, therefore, capital expenditure with hedging tends to be perceived as over-investment. This paper is one of the first studies that empirically examine the reduction of market dependence and over-investment through hedging.


Ullah, S., Irfan, M., Kim, J. R., & Ullah, F. (2022). Capital expenditures, corporate hedging and firm value. Quarterly Review of Economics and Finance, 87, 360-366.

Journal Article Type Article
Acceptance Date Jun 27, 2021
Online Publication Date Jun 29, 2021
Publication Date 2022-02
Deposit Date Jun 28, 2021
Publicly Available Date Jun 30, 2023
Journal Quarterly Review of Economics and Finance
Print ISSN 1062-9769
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 87
Pages 360-366
Keywords Economics and Econometrics; Finance
Public URL
Publisher URL


You might also like

Downloadable Citations