Neutral and Non Neutral Shock Effects on Hedging, Investment and Debt
AbstractBy trading derivatives on the financial markets, a firm can hedge against the fluctuations of its internal funds, in order to better coordinate investment and financing decisions. This work shows how optimal investment, debt and hedging strategy can be strongly dependent on the mechanism linking the firm's internal funds to its returns on investment. In particular, when internal funds react to a prospective price change (neutral shock), investment and debt would be positively related; when internal funds react to a non neutral productivity shock, investment and debt would be either negatively related (no hedging) or unrelated (hedging).
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Bibliographic InfoPaper provided by Department of Economics, University of York in its series Discussion Papers with number 01/08.
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Postal: Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom
Phone: (0)1904 323776
Fax: (0)1904 323759
Web page: http://www.york.ac.uk/economics/
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Hedging; investment; debt; volatility; productivity.;
Find related papers by 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-10-09 (All new papers)
- NEP-CFN-2001-10-09 (Corporate Finance)
- NEP-FIN-2001-10-09 (Finance)
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