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Corporate risk management, product market competition, and disclosure

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  • Hoang, Daniel
  • Ruckes, Martin

Abstract

This paper studies the effects of hedge disclosure requirements on corporate risk management and product market competition. The analysis is based on a model of market entry and shows that to prevent entry incumbent firms engage in risk management when these activities remain unobserved by outsiders. In the resulting equilibrium, financial markets are well informed and entry is efficient. However, potential attempts for more transparency by additional disclosure requirements introduce a commitment device that provides incumbents with incentives to distort risk management activities thereby influencing entrant beliefs. In equilibrium, firms engage in significant risk-taking. This behavior limits entry and adversely affects the nature of competition in industries.

Suggested Citation

  • Hoang, Daniel & Ruckes, Martin, 2017. "Corporate risk management, product market competition, and disclosure," Journal of Financial Intermediation, Elsevier, vol. 30(C), pages 107-121.
  • Handle: RePEc:eee:jfinin:v:30:y:2017:i:c:p:107-121
    DOI: 10.1016/j.jfi.2016.07.003
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    More about this item

    Keywords

    Risk management; Hedge disclosures; Market entry;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting

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