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Optimal Hedging Strategies and Interactions between Firms

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  • Frederic Loss

Abstract

This paper studies corporate risk management in a context with financial constraints and imperfect competition on the product market. We show that the interactions between firms heavily affect their hedging demand. As a general rule, the firms’ hedging demand decreases with the correlation between firms’ internal funds and investment opportunities. We show that when the hedging demand of a firm is high in the case where investments are strategic substitutes, its hedging demand is low in the case where investments are strategic complements and vice versa. Finally, we also propose another interpretation of our model in terms of technical choice.

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File URL: http://hdl.handle.net/10.1111/j.1530-9134.2011.00328.x
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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

Volume (Year): 21 (2012)
Issue (Month): 1 (03)
Pages: 79-129

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Handle: RePEc:bla:jemstr:v:21:y:2012:i:1:p:79-129

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Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/

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Cited by:
  1. Léautier, Thomas-Olivier & Rochet, Jean-Charles, 2012. "On the strategic value of risk management," IDEI Working Papers 739, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. Liu, Tingjun & Parlour, Christine A., 2009. "Hedging and competition," Journal of Financial Economics, Elsevier, vol. 94(3), pages 492-507, December.
  3. Léautier, Thomas-Olivier & Rochet, Jean-Charles, 2013. "On the strategic value of risk management," IDEI Working Papers 797, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Léautier, Thomas-Olivier & Rochet, Jean-Charles, 2013. "On the strategic value of risk management," TSE Working Papers 13-433, Toulouse School of Economics (TSE).

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