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The Determinants of the Decision to Use Financial Derivatives in the Lodging Industry

^* To whom correspondence should be addressed. E-mail: asingh22{at}du.edu.

	Abstract

This study investigates the determinants of the decision to hedge in a sample of lodging firms over a 5-year period from 2000 to 2004. Using a probit model, the results show that underinvestment costs, financial distress costs, managerial risk aversion, information asymmetry, cash-flow volatility, proportion of floating-rate debt, foreign sales ratio, and firm size are significant determinants of the decision to hedge. The findings also document that lodging firms predominantly use interest rate swaps and options to manage interest rate risk. These findings are generally consistent with the theory of hedging as well as with prior research findings on the decision to hedge.

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