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The wealth effect of swap usage in the food processing industry

  • Jian Yang

    (Texas A&M University)

  • David J. Leatham

    (Texas A&M University)

  • Spencer A. Case

    (Texas A&M University)

U.S. companies use interest rate swaps more than any other financial derivative. The effect of swap usage on the shareholders' wealth is both controversial and unclear. Using a sample from the food processing industry, we examined both short-run and long-run wealth effects associated with swap usage. A significant long-run wealth effect of swap usage on swap users was not found. However, there was a significant negative wealth effect during a short period before firms first disclosed swap usage to the SEC. This finding is consistent with the argument that derivative usage may not be in the best interest of shareholders. © 2000 John Wiley & Sons, Inc.

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Article provided by John Wiley & Sons, Ltd. in its journal Agribusiness.

Volume (Year): 16 (2000)
Issue (Month): 3 ()
Pages: 367-379

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Handle: RePEc:wly:agribz:v:16:y:2000:i:3:p:367-379
Contact details of provider: Web page: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1520-6297

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  1. Elijah Brewer & William E. Jackson & James T. Moser, 1996. "Alligators in the swamp: the impact of derivatives on the financial performance of depository institutions," Proceedings, Federal Reserve Bank of Cleveland, issue Aug, pages 482-501.
  2. Cooper, Ian A & Mello, Antonio S, 1991. " The Default Risk of Swaps," Journal of Finance, American Finance Association, vol. 46(2), pages 597-620, June.
  3. Bicksler, James & Chen, Andrew H, 1986. " An Economic Analysis of Interest Rate Swaps," Journal of Finance, American Finance Association, vol. 41(3), pages 645-55, July.
  4. Anatoli Kuprianov, 1994. "The role of interest rate swaps in corporate finance," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 49-68.
  5. Wall, Larry D., 1989. "Interest rate swaps in an agency theoretic model with uncertain interest rates," Journal of Banking & Finance, Elsevier, vol. 13(2), pages 261-270, May.
  6. Marcelle Arak & Arturo Estrella & Laurie Goodman & Andrew Silver, 1988. "Interest rate swaps: an alternative explanation," Research Paper 8811, Federal Reserve Bank of New York.
  7. Sheridan Titman, 1990. "Interest rate swaps and corporate financing choices," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
  8. J. David Cummins & Richard D. Phillips & Stephen D. Smith, 1998. "The rise of risk management," Economic Review, Federal Reserve Bank of Atlanta, issue Q 1, pages 30-40.
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