Is Hedging Reliable in Minimizing Corporate Financial Distress around the Covid-19 Pandemic?
Moh Khoiruddin, S. Martono

Management Department, Faculty of Economics, Universitas Negeri Semarang

Abstract

The uncertainty of conditions due to the Covid-19 pandemic has had a major impact on companies operating in almost all countries. Many companies that rely on foreign exchange in their transactions experience financial difficulties ranging from mild to severe. Companies that carry out international trading activities, especially mining companies, are very potentially exposed to the risk of fluctuations in currency exchange rates which can have a negative impact on cash flows and company value, which will affect the viability of the company. One popular alternative for protecting companies is hedging policies, which allow companies to be protected from changes in foreign exchange rates that are very difficult to predict. The purpose of this study is to find out whether hedging is still able to contribute to reducing the company^s financial difficulties in the midst of the Covid-19 pandemic. By purposive sampling, 39 mining companies listed data on the Indonesia Stock Exchange for the period 2017-2020 were obtained, which were then analyzed by multiple regression.
The results showed that hedging had a significant positive effect on the company^s level of financial distress throughout the study period which represented the period before and during the Covid-19 pandemic. This finding shows that the company^s hedging policy can still be relied on in reducing the level of risk of financial distress in chaotic conditions. The results of this study are important for the development of financial management learning materials in the future. Further research can consider the use of other control variables to better explain the effect of hedging policies on corporate financial distress.

Keywords: Corporate fiancial, hedging, international trading, financial distress

Topic: Optimization Research Based on Local Resources