Influence of Hedging on Firm Value: Evidence from Russian Power Companies

Abstract

Great number of risks for Russian non-financial companies appears these days and especially market risks have gained importance to companies’ profitability during the past few decades. Volatility on energy market causes increase scientific attention to hedging and firm value estimation. Importance of the thesis is predetermined by the absence of relevant studies on Russian power sector. The goal of the research is to test the existence of influence of hedging on value of Russian power companies. Three tasks were stated and one hypothesis about positive influence of hedging on the firm value in Russian power industry was tested on the basis of secondary data of following types: academic articles, annual reports and SKRIN database for Russian public companies. The empirical part was done on the sample of 51 Russian power companies in the period from 2007 till 2011. Analysis of academic and professional papers leads to the conclusion that hedging activities of Russian power companies reduce agency conflicts between shareholders and managers. Based on the results of the thesis firms’ decisions of applying hedging do not influence company’s value. Hedging in Russian power companies influence the firm value negatively, however, the result is insignificant, therefore we could not predict the value-adding or value-decreasing effect of hedging. Among five considered variables, that are assumed to affect the existence of hedging activities in a company, only firm size and investment growth have positive significant influence according to conducted research on Russian power sector.