On Corporate Hedging and Firm Focus and on Bank Board Structure

In this study, we examine the relation between corporate hedging and firm focus in the REIT industry. The REIT industry is suitable for the investigation for various reasons, with the primary one being that the tax codes of REITs restrict their abilities to use derivatives for speculative purposes. We find 46.41% utilization rate in 2005 and 43.41% in 2007. Consistent with our hypothesis, we find that, relative to diversified firms, focused firms are more likely to engage in hedging. Focused firms also tend to be involved in greater amount of hedging. However, the evidence is not strong because not all measures of firm focus are statistically significant. We also document a negative relation between hedging and transparency, although the evidence is not overwhelming. Consistent with previous literature, we find a firm size effect. Namely, larger REITs are more likely to hedge, but their hedge amounts tend to be smaller (relative to their assets) than their smaller counterparts.