Determinants of Hedging Decisions in State-Owned and Private Manufacturing Firms on the IDX

Abstract

The purpose of this study is to examine the determinants of hedging decisions in state-owned and private manufacturing firms on the IDX. Based on the previous research from Mediana & Muharam (2016), several determinant factors of hedging decisions were identified, namely liquidity, leverage, firm size, profitability and public ownership. The analytical method used is logistic regression analysis using a sample of 175 state-owned and private manufacturing firms from 2018-2020. The results of the analysis show that only liquidity and firm size have a significant influence on hedging decisions, which are negative and positive, respectively. The implication that can be taken is that when the firm makes a hedging decision, the firm needs to reduce liquidity or invest in working capital. On the other hand the firm needs to increase firm size through its fixed asset investment activities. Result of this study supports the optimal hedge ratio theory of Carter (2003).