The effect of family ownership on corporate hedging: the case of Thailand

ABSTRACT

We explore how corporate hedging decisions are affected by family ownership and control in Thailand. One crucial advantage of investigating this issue in Thailand is that hedging instruments became available only recently, long after families established their presence in the firm. Thus, endogeneity is much less likely. The evidence shows that family ownership by itself does not have a significant impact on the firm’s propensity to hedge. However, when family members have a presence on the board of directors, the firm is significantly more likely to engage in hedging activities. Furthermore, we find that the presence of institutional blockholders also increases the likelihood of hedging significantly. Our study is the first to examine the impact of family ownership and control on corporate hedging behaviour in an emerging market.

KEYWORDS:

• Family ownership
• family control
• hedging
• risk management
• emerging markets

JEL CLASSIFICATION:

• G32
• G34

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Corrigendum

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Companies listed on the Stock Exchange of Thailand are required by law to comply with the Thai Accounting Standards. Most, if not all, Thai Accounting Standards correspond to the International Financial Reporting Standards (IFRS). Under the Thai Accounting Standard No. 48 (TAS 48) ‘Financial Instruments: Disclosure and Presentations’, companies must describe the financial risks arising from their use of financial instruments and how the risks are managed in the notes to financial statements. Moreover, all types of financial instruments must be recorded at fair value.

² We choose not to collect data from a survey because there is evidence that surveys normally lead to two biases: (1) nonresponse bias and (2) reliability of information bias. Many of the previous studies on corporate hedging, such as Nance, Smith and Smithson (1993), Jalilvand (2009), Haushalter (2000) and Bodnar, Jong and Macrae (2003), use survey data in conducting hedging behaviour tests. All of them face the nonresponse bias. That is, approximately 30% of the companies surveyed returned a completed questionnaire and the majority of the respondents were hedgers.

³ Normally a resolution is passed at a shareholder’s meeting if 75% or more votes are cast.

⁴ The Stock Exchange of Thailand categorizes companies into 8 industries, which comprise of 27 sectors. By market capitalization, the largest three industries are resources (33.06%), financials (22.15%) and property and construction (11.93%). By total number of companies, the largest three sectors are property and construction, services and industrials, respectively.