IDEAS home Printed from https://ideas.repec.org/a/eee/finana/v71y2020ics1057521920301617.html
   My bibliography  Save this article

On-balance-sheet duration hedging and firm value

Author

Listed:
  • Dai, Ya
  • Guo, Liang
  • Zhang, Hongxian
  • Liu, Yu

Abstract

In this study we consider the determinants and effects of on-balance-sheet duration hedging for non-financial US firms. The difference between the duration of assets and liabilities, or duration gap, is negatively related to growth opportunities, and positively related to profitability, corporate cash holdings, and managerial ownership. We find that both a lower duration gap and a lower absolute value of duration gap are associated with higher firm values. Moreover, we find some evidence that firms with larger duration gaps performed worse during the market-wide liquidity shock accompanying the Lehman Brothers bankruptcy.

Suggested Citation

  • Dai, Ya & Guo, Liang & Zhang, Hongxian & Liu, Yu, 2020. "On-balance-sheet duration hedging and firm value," International Review of Financial Analysis, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:finana:v:71:y:2020:i:c:s1057521920301617
    DOI: 10.1016/j.irfa.2020.101517
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1057521920301617
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.irfa.2020.101517?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Guedes, Jose & Opler, Tim, 1996. "The Determinants of the Maturity of Corporate Debt Issues," Journal of Finance, American Finance Association, vol. 51(5), pages 1809-1833, December.
    2. Bessembinder, Hendrik, 1991. "Forward Contracts and Firm Value: Investment Incentive and Contracting Effects," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(4), pages 519-532, December.
    3. Daniel M. Covitz & Steven A. Sharpe, 2005. "Do nonfinancial firms use interest rate derivatives to hedge?," Finance and Economics Discussion Series 2005-39, Board of Governors of the Federal Reserve System (U.S.).
    4. Jarrad Harford & Sandy Klasa & William F. Maxwell, 2014. "Refinancing Risk and Cash Holdings," Journal of Finance, American Finance Association, vol. 69(3), pages 975-1012, June.
    5. Emery, Gary W, 2001. "Cyclical Demand and the Choice of Debt Maturity," The Journal of Business, University of Chicago Press, vol. 74(4), pages 557-590, October.
    6. McConnell, John J. & Servaes, Henri, 1990. "Additional evidence on equity ownership and corporate value," Journal of Financial Economics, Elsevier, vol. 27(2), pages 595-612, October.
    7. Jarrad Harford & Kai Li & Xinlei Zhao, 2008. "Corporate boards and the leverage and debt maturity choices," International Journal of Corporate Governance, Inderscience Enterprises Ltd, vol. 1(1), pages 3-27.
    8. Sudip Datta & Mai Iskandar‐Datta & Kartik Raman, 2005. "Managerial Stock Ownership and the Maturity Structure of Corporate Debt," Journal of Finance, American Finance Association, vol. 60(5), pages 2333-2350, October.
    9. Paul Gompers & Joy Ishii & Andrew Metrick, 2003. "Corporate Governance and Equity Prices," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 107-156.
    10. Barclay, Michael J & Smith, Clifford W, Jr, 1995. "The Maturity Structure of Corporate Debt," Journal of Finance, American Finance Association, vol. 50(2), pages 609-631, June.
    11. Brick, Ivan E & Ravid, S Abraham, 1985. "On the Relevance of Debt Maturity Structure," Journal of Finance, American Finance Association, vol. 40(5), pages 1423-1437, December.
    12. Shane A. Johnson, 2003. "Debt Maturity and the Effects of Growth Opportunities and Liquidity Risk on Leverage," The Review of Financial Studies, Society for Financial Studies, vol. 16(1), pages 209-236.
    13. Allayannis, George & Weston, James P, 2001. "The Use of Foreign Currency Derivatives and Firm Market Value," The Review of Financial Studies, Society for Financial Studies, vol. 14(1), pages 243-276.
    14. John R. Graham & Daniel A. Rogers, 2002. "Do Firms Hedge in Response to Tax Incentives?," Journal of Finance, American Finance Association, vol. 57(2), pages 815-839, April.
    15. Söhnke Bartram, 2002. "The Interest Rate Exposure of Nonfinancial Corporations," Review of Finance, European Finance Association, vol. 6(1), pages 101-125.
    16. Fusheng Xie & An Li & Andong Zhu, 2013. "Marxist Crisis Theory and the Rate of Profit in the U.S. Economy during 1975-2008," Economic and Political Studies, Taylor & Francis Journals, vol. 1(1), pages 44-78, January.
    17. Oliver Hart & John Moore, 1994. "A Theory of Debt Based on the Inalienability of Human Capital," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 841-879.
    18. Nance, Deana R & Smith, Clifford W, Jr & Smithson, Charles W, 1993. "On the Determinants of Corporate Hedging," Journal of Finance, American Finance Association, vol. 48(1), pages 267-284, March.
    19. Stohs, Mark Hoven & Mauer, David C, 1996. "The Determinants of Corporate Debt Maturity Structure," The Journal of Business, University of Chicago Press, vol. 69(3), pages 279-312, July.
    20. Elijah Brewer, 1985. "Bank gap management and the use of financial futures," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 9(Mar), pages 12-22.
    21. Flannery, Mark J, 1986. "Asymmetric Information and Risky Debt Maturity Choice," Journal of Finance, American Finance Association, vol. 41(1), pages 19-37, March.
    22. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation," Scholarly Articles 29407535, Harvard University Department of Economics.
    23. René M. Stulz, 2000. "Financial Structure, Corporate Finance and Economic Growth," International Review of Finance, International Review of Finance Ltd., vol. 1(1), pages 11-38, March.
    24. Graham, John R. & Harvey, Campbell R., 2001. "The theory and practice of corporate finance: evidence from the field," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 187-243, May.
    25. George G. Kaufman, 1984. "Measuring and managing interest rate risk: A primer," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 8(Jan), pages 16-29.
    26. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    27. Flannery, Mark J, 1981. "Market Interest Rates and Commercial Bank Profitability: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 36(5), pages 1085-1101, December.
    28. Douglas W. Diamond, 1991. "Debt Maturity Structure and Liquidity Risk," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(3), pages 709-737.
    29. Demirguc-Kunt, Asli & Maksimovic, Vojislav, 1999. "Institutions, financial markets, and firm debt maturity," Journal of Financial Economics, Elsevier, vol. 54(3), pages 295-336, December.
    30. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
    31. Gordon M. Bodnar & Gregory S. Hayt & Richard C. Marston, 1998. "1998 Wharton Survey of Financial Risk Management by US Non-Financial Firms," Financial Management, Financial Management Association, vol. 27(4), Winter.
    32. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    33. Smith, Clifford Jr. & Warner, Jerold B., 1979. "On financial contracting : An analysis of bond covenants," Journal of Financial Economics, Elsevier, vol. 7(2), pages 117-161, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chen, Haiyang & Dai, Ya & Guo, David, 2023. "Financial literacy as a determinant of market participation: New evidence from China using IV-GMM," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 611-623.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wang, Qin (Emma) & Zhang, Jun, 2023. "Local institutional investors and debt maturity," Journal of Financial Markets, Elsevier, vol. 62(C).
    2. Wu, Julia Yonghua & Opare, Solomon & Bhuiyan, Md. Borhan Uddin & Habib, Ahsan, 2022. "Determinants and consequences of debt maturity structure: A systematic review of the international literature," International Review of Financial Analysis, Elsevier, vol. 84(C).
    3. Maria-Teresa Marchica, "undated". "Debt Maturity and the Characteristics of Ownership Structure: An Empirical Investigation of UK Firms," Discussion Papers 05/29, Department of Economics, University of York.
    4. Dung T. T. Tran & Hieu V. Phan, 2022. "Government economic policy uncertainty and corporate debt contracting," International Review of Finance, International Review of Finance Ltd., vol. 22(1), pages 169-199, March.
    5. Kashefi Pour, Eilnaz & Lasfer, Meziane, 2019. "Taxes, governance, and debt maturity structure: International evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 58(C), pages 136-161.
    6. Pedro J. García‐Teruel & Pedro Martínez‐Solano & Juan P. Sánchez‐Ballesta, 2010. "Accruals Quality and Debt Maturity Structure," Abacus, Accounting Foundation, University of Sydney, vol. 46(2), pages 188-210, June.
    7. Pan, Wei-Fong & Wang, Xinjie & Yang, Shanxiang, 2019. "Debt maturity, leverage, and political uncertainty," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    8. Orman, Cüneyt & Bülent, Köksal, 2015. "Structure of Debt Maturity across the Firm Type Spectrum," MPRA Paper 64860, University Library of Munich, Germany.
    9. Tanaka, Takanori, 2016. "How do managerial incentives affect the maturity structure of corporate public debt?," Pacific-Basin Finance Journal, Elsevier, vol. 40(PA), pages 130-146.
    10. Gao, Ning & Jiang, Wei & Jin, Jiaxu, 2023. "Disproportional control rights and debt maturity," International Review of Financial Analysis, Elsevier, vol. 85(C).
    11. Jorge A. Muñoz Mendoza & Sandra M. Sepúlveda Yelpo & Carmen L. Veloso Ramos, 2019. "Non-linear Effects of Ownership Structure, Growth Opportunities and Leverage on Debt Maturity in Chilean Firms," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 14(1), pages 21-40, Enero-Mar.
    12. Freund, Steven & Kovacs, Tunde & Nguyen, Nam H. & Phan, Hieu V., 2023. "CEO personality traits and debt contracting: Evidence from pilot CEOs," International Review of Financial Analysis, Elsevier, vol. 85(C).
    13. Awartani, Basel & Belkhir, Mohamed & Boubaker, Sabri & Maghyereh, Aktham, 2016. "Corporate debt maturity in the MENA region: Does institutional quality matter?," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 309-325.
    14. Jorge Andrés Munoz Mendoza & Sandra María Sepúlveda Yelpo, 2016. "Does managerial discretion affect debt maturity in Chilean firms? An agency cost and asymmetric information approach," Revista Ecos de Economía, Universidad EAFIT, vol. 20(43), pages 65-87, December.
    15. Cai, Kailan & Fairchild, Richard & Guney, Yilmaz, 2008. "Debt maturity structure of Chinese companies," Pacific-Basin Finance Journal, Elsevier, vol. 16(3), pages 268-297, June.
    16. Custódio, Cláudia & Ferreira, Miguel A. & Laureano, Luís, 2013. "Why are US firms using more short-term debt?," Journal of Financial Economics, Elsevier, vol. 108(1), pages 182-212.
    17. Cuneyt Orman & Bulent Koksal, 2015. "Structure of Debt Maturity across Firm Types," Working Papers 1521, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    18. Viet Anh Dang & Edward Lee & Yangke Liu & Cheng Zeng, 2018. "Corporate debt maturity and stock price crash risk," European Financial Management, European Financial Management Association, vol. 24(3), pages 451-484, June.
    19. Stephan, Andreas & Talavera, Oleksandr & Tsapin, Andriy, 2011. "Corporate debt maturity choice in emerging financial markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(2), pages 141-151, May.
    20. Chang Nam & Doina Radulescu, 2010. "Effects of corporate tax reform on optimum debt maturity," Annals of Finance, Springer, vol. 6(3), pages 369-389, July.

    More about this item

    Keywords

    Duration gap; Valuation; Liquidity;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finana:v:71:y:2020:i:c:s1057521920301617. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620166 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.