Effect Of Corporate Risk Hedging Practices On Firm Value Of Listed Commercial And Service Firms In Kenya

Abstract

This study aimed to examine the effect of financial risk hedging practices on firm value of listed commercial and service firms in Kenya. This study was guided by the following four objectives: To examine the effect of liquidity risk hedging on firm’s value of listed commercial and service firms in Kenya, to assess the effect of credit risk hedging on firms value of firm’s value of listed commercial and service firms in Kenya, to determine the effect of operational risk hedging on firm’s value of listed commercial and service firms in Kenya, to determine the effect of forex risk hedging on firm’s value of listed commercial and service firms in Kenya. The study employed descriptive research design using panel data analysis. The target population of the study encompassed 10 listed commercial and service firms in Kenya. All the 10 listed commercial and service firms in Kenya formed the sample size as the study was a census of listed banks in Kenya. Secondary data was extracted from published annual reports of individual listed commercial and service firms. The destructed data was recorded on data collection sheets. Both descriptive and inferential statistics were used. Descriptive analysis such as mean, frequencies and standard deviation were used. For inferential analysis, correlation analysis was adopted to test the association between risk hedging practices and firm value of listed commercial and service firms in Kenya. Simple OLS model was used to establish the causal effect relationship. The findings were presented using tables with associated explanations.The study established that credit risk hedging, liquidity risk hedging and operational risk hedging had statistically significant effect on firm’s value of listed commercial and service firms in Kenya. However , the effect foreign exchange risk hedging was not statistically significant .The study concludes that corporate risk hedging has a significant effect on firm’s value of listed commercial and service firms in Kenya. The study recommends to management of listed commercial and service firms in Kenya to improve on their hedging activities towards credit risk. Specifically ,the study recommends that the firms should set aside enough provisions for bad and doubtful debts to cover for any eventual bad debts, which may have to be written off .Secondly ,the current study wishes to recommend to the top management of listed commercial and service firms to ensure the firms are liquid enough such that they do not run into financial distress a situation where they are not able to settle short term obligations as they fall due. Finally ,the current study wishes to recommend to the top management of listed commercial and service firms to control forex risk however , since the effect of forex risk hedging was not significant especially for firms with minimal currency exposers