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Interaction effects of corporate hedging activities for a multi-risk exposure: evidence from a quasi-natural experiment

Author

Listed:
  • Markus Hang

    (Institute of Materials Resource Management, University of Augsburg)

  • Jerome Geyer-Klingeberg

    (Institute of Materials Resource Management, University of Augsburg)

  • Andreas W. Rathgeber

    (Institute of Materials Resource Management, University of Augsburg)

  • Clémence Alasseur

    (EDF R&D - FIME Finance for Energy Market Research Center)

  • Lena Wichmann

    (Institute of Materials Resource Management, University of Augsburg)

Abstract

This study analyzes the interaction effects of corporate hedging activities of electric utility firms facing a manifold risk exposure consisting of several market price risks. We employ 16 recent introductions of markets for trading electricity derivatives as a quasi-natural experiment. The results show that electric utilities generally favor domestic markets for trading electricity derivatives, which might be reduced to their usual high market power and the related good predictability of electricity prices. As a consequence, electricity output hedging eliminates a major part of overall market risk. Further, we identify several spillover effects of electricity output hedging: The sensitivities to input commodity prices decrease, while the sensitivities to foreign exchange rates and interest rates increase. Furthermore, electricity output hedging increases debt capacities and the availability of internal funds. These results are relevant for electric utility firms, market operators, and policy makers, since the selective presence of derivatives markets might let financing policies globally diverge.

Suggested Citation

  • Markus Hang & Jerome Geyer-Klingeberg & Andreas W. Rathgeber & Clémence Alasseur & Lena Wichmann, 2021. "Interaction effects of corporate hedging activities for a multi-risk exposure: evidence from a quasi-natural experiment," Review of Quantitative Finance and Accounting, Springer, vol. 56(2), pages 789-818, February.
    • Handle: RePEc:kap:rqfnac:v:56:y:2021:i:2:d:10.1007_s11156-020-00909-6
    DOI: 10.1007/s11156-020-00909-6
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    More about this item

    Keywords

    Corporate hedging; Difference-in-differences; market access; Market introduction; Utility industry;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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