Abstract

This paper examines the relation between hedging and firm value for global airline sample from 2000 to 2012, resulting in 411 firm-year observations. We show that hedging strategies are effective at reducing the variability of operating cash flows. We find an average value premium of 6.5% associated with hedging for low cost carriers but no value premium for major carriers. Our results empirically evidence of value maximization via hedging when firms have significant investment opportunities (alleviating the underinvestment problem faced by low cost carriers during their high growth stage), and/or face potential financial distress costs.