Develop strategies to increase growth potential

Oct 13, 2025 by talynt.org 123 views

The Influence of Growth Opportunity and Financial Distress on Hedging Decisions in Manufacturing Companies Listed on the Indonesia Stock Exchange (2012-2017)

Introduction

In the business world, companies are often faced with various risks, especially financial risks that can affect their performance. One way to manage the risk is through a hedging strategy. Hedging is a financial strategy used by companies to reduce or eliminate the risk associated with their investments. This study aims to understand how growth opportunities (growth opportunities) and financial conditions (financial distress) influenced hedging decisions in manufacturing companies listed on the Indonesia Stock Exchange during the 2012 to 2017 period.

The Importance of Hedging in Manufacturing Companies

Manufacturing companies are exposed to various risks, including financial risks, operational risks, and market risks. Financial risks can arise from changes in interest rates, exchange rates, and commodity prices. Operational risks can arise from production disruptions, supply chain disruptions, and employee errors. Market risks can arise from changes in market demand, competition, and regulatory changes. Hedging is a financial strategy used by companies to reduce or eliminate these risks.

Research Methodology

This research utilizes secondary data that can be accessed through the official website of the Indonesia Stock Exchange (www.idx.co.id). Of the population consisting of 148 manufacturing companies, the purposive sampling method is used to obtain 56 companies as a sample with an observation period of six years. Thus, the total unit of analysis used in this study reached 336 observations.

Furthermore, the influence between the Growth Opportunity and Financial Distress variable on hedging decisions was tested using logistics regression analysis with SPSS 20 software. Before the regression analysis was carried out, it was important to ensure that the data used was in accordance with the selected regression model.

Research Result

The results of the study show that overall, the two independent variables - Growth Opportunity and Financial Distress - have a significant influence on hedging decisions. More specifically, the analysis shows that Growth Opportunity has a positive and significant influence on hedging decisions. That is, the greater the growth opportunities the company has, the more likely they are to do hedging. This could be caused by the company's need to protect values and reduce uncertainty associated with their investment.

On the other hand, financial distress is proven to have a negative and significant influence on hedging decisions. When companies experience financial difficulties, they tend to be more careful and might avoid hedging strategies that require significant allocation of financial resources. This situation reflects the company's conservative approach in managing risk when they operate under financial pressure.

Analysis and Implications

The findings of this study provide important insights for manufacturing company management in making financial decisions. By understanding that growth opportunities can encourage hedging decisions, companies are advised to develop strategies that can increase growth potential, so as to maximize the use of hedging as a means of risk mitigation.

Conversely, companies that experience financial distress must re -evaluate their approach to hedging. Although hedging can offer protection against risk, companies in difficult financial conditions may be better to focus on internal improvement and restructuring before investing resources for hedging strategies.

Thus, this research not only adds literature regarding hedging decisions in manufacturing companies, but also provides practical guidelines for better managerial decision making in managing financial risks. This is important in the context of the Indonesian capital market, where companies must face a variety of unique challenges and opportunities.

Conclusion

In conclusion, this study provides valuable insights into the influence of growth opportunities and financial distress on hedging decisions in manufacturing companies listed on the Indonesia Stock Exchange. The findings of this study suggest that growth opportunities can encourage hedging decisions, while financial distress can discourage hedging decisions. These findings have important implications for manufacturing company management in making financial decisions.

Recommendations

Based on the findings of this study, the following recommendations are made:

Develop strategies to increase growth potential: Companies should develop strategies that can increase growth potential, so as to maximize the use of hedging as a means of risk mitigation.
Re-evaluate hedging approach: Companies that experience financial distress should re-evaluate their approach to hedging. Although hedging can offer protection against risk, companies in difficult financial conditions may be better to focus on internal improvement and restructuring before investing resources for hedging strategies.
Monitor financial conditions: Companies should monitor their financial conditions closely and adjust their hedging strategies accordingly.

Limitations

This study has several limitations. Firstly, the study only focuses on manufacturing companies listed on the Indonesia Stock Exchange. Secondly, the study only uses secondary data, which may not be comprehensive or up-to-date. Finally, the study only uses logistics regression analysis, which may not capture the complexity of the relationship between growth opportunities, financial distress, and hedging decisions.

Future Research Directions

Future research should aim to overcome the limitations of this study. For example, future research can focus on other types of companies, such as service companies or technology companies. Future research can also use primary data, such as survey data or interview data, to capture the complexity of the relationship between growth opportunities, financial distress, and hedging decisions. Finally, future research can use other analytical techniques, such as machine learning or panel data analysis, to capture the dynamics of the relationship between growth opportunities, financial distress, and hedging decisions.

References

[List of references cited in the study]

Appendix

[Appendix containing additional tables, figures, and data]

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Frequently Asked Questions (FAQs) about the Influence of Growth Opportunity and Financial Distress on Hedging Decisions in Manufacturing Companies Listed on the Indonesia Stock Exchange (2012-2017)

Q: What is hedging, and why is it important for manufacturing companies?

A: Hedging is a financial strategy used by companies to reduce or eliminate the risk associated with their investments. It is an important tool for manufacturing companies to manage their financial risks and protect their values.

Q: What are growth opportunities, and how do they influence hedging decisions?

A: Growth opportunities refer to the potential for a company to increase its revenue, profits, and market share. The study found that growth opportunities have a positive and significant influence on hedging decisions, meaning that companies with more growth opportunities are more likely to engage in hedging.

Q: What is financial distress, and how does it influence hedging decisions?

A: Financial distress refers to a company's inability to meet its financial obligations, such as paying its debts or meeting its financial commitments. The study found that financial distress has a negative and significant influence on hedging decisions, meaning that companies experiencing financial distress are less likely to engage in hedging.

Q: What are the implications of the study's findings for manufacturing company management?

A: The study's findings suggest that manufacturing companies should develop strategies to increase their growth potential and monitor their financial conditions closely. Companies experiencing financial distress should re-evaluate their approach to hedging and focus on internal improvement and restructuring before investing resources for hedging strategies.

Q: What are the limitations of the study, and how can future research build on the findings?

A: The study has several limitations, including its focus on manufacturing companies listed on the Indonesia Stock Exchange and its use of secondary data. Future research can build on the findings by focusing on other types of companies, using primary data, and employing other analytical techniques.

Q: What are the practical implications of the study's findings for companies and investors?

A: The study's findings have important implications for companies and investors. Companies should develop strategies to increase their growth potential and monitor their financial conditions closely. Investors should be aware of the potential risks and opportunities associated with hedging and consider these factors when making investment decisions.

Q: How can companies use the study's findings to improve their hedging strategies?

A: Companies can use the study's findings to improve their hedging strategies by developing strategies to increase their growth potential and monitoring their financial conditions closely. Companies experiencing financial distress should re-evaluate their approach to hedging and focus on internal improvement and restructuring before investing resources for hedging strategies.

Q: What are the potential risks and opportunities associated with hedging?

A: Hedging can offer protection against risk, but it can also involve significant costs and complexities. Companies should carefully consider the potential risks and opportunities associated with hedging before making investment decisions.

Q: How can investors use the study's findings to make informed investment decisions?

A: Investors can use the study's findings to make informed investment decisions by considering the potential risks and opportunities associated with hedging. Investors should be aware of the company's growth potential, financial conditions, and hedging strategies before making investment decisions.

Q: What are the future research directions for this study?

A: Future research can build on the findings of this study by focusing on other types of companies, using primary data, and employing other analytical techniques. Future research can also explore the dynamics of the relationship between growth opportunities, financial distress, and hedging decisions.

Q: What are the policy implications of the study's findings?

A: The study's findings have important policy implications. Policymakers should consider the potential risks and opportunities associated with hedging and develop policies to support companies in managing their financial risks.

Q: How can companies and investors use the study's findings to improve their financial decision-making?

A: Companies and investors can use the study's findings to improve their financial decision-making by considering the potential risks and opportunities associated with hedging. Companies should develop strategies to increase their growth potential and monitor their financial conditions closely. Investors should be aware of the company's growth potential, financial conditions, and hedging strategies before making investment decisions.