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Corporate Hedging andProductivity Shocks: Implications onInvestment and Debt

Author

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  • Marcello Spano

    (Department of Economics -University of Insubria, Italy.)

Abstract

This work compares two models of corporate hedging, to show how optimal investment, debt, and hedging strategy can be strongly dependent on the mechanism linking the firm’s internal funds to its return on investment. Approximated analytical solutions for hedging and a numerical example simulating the effects of a productivity shock are obtained to shed light on the different empirical implications associated to the two mechanisms. The latter appear to be distinguishable by observing the extent of hedging for equal values of the relevant parameters, and the correlation between investment and debt in a period of technological change.

Suggested Citation

  • Marcello Spano, 2020. "Corporate Hedging andProductivity Shocks: Implications onInvestment and Debt," International Journal of Business and Social Research, LAR Center Press, vol. 10(4), pages 10-21, April.
    • Handle: RePEc:lrc:larijb:v:10:y:2020:i:4:p:10-21
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    File URL: https://thejournalofbusiness.org/index.php/site/article/view/1321/720
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    References listed on IDEAS

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    More about this item

    Keywords

    Hedging; Investment; Debt; Productivity.;
    All these keywords.

    JEL classification:

    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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