Corporate Ownership and Financial Hedging: Evidence from India

Abstract

Risk management theories offer multiple rationales for hedging, yet less is known about how ownership structures influence such decisions, especially in emerging markets. In this paper, I investigate the hedging-ownership nexus in India, a setting characterized by high promoter concentration, a distinctive role of institutional investors, and a relatively developed derivatives market. Using hand-collected data for 441 listed firms between 2016 and 2024, I examine the effects of promoter and institutional ownership on firms' hedging activities. I find that higher promoter ownership increases the likelihood of hedging, consistent with the view that promoters'personal wealth is closely tied to the firm. Similarly, institutional ownership also increases the propensity to hedge. Additionally, I document that pressure-resistant institutional investors encourage hedging, whereas pressure-sensitive investors do not. My findings are robust to alternative specifications, alternative measures of hedging, plausible endogeneity concerns, and sample selection bias. Findings extend the literature by highlighting the role of ownership structure in hedging practices in an emerging market context.