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Strategic Risk Management and Product Market Competition

In: Advances in Financial Risk Management

Author

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  • Tim R. Adam
  • Amrita Nain

Abstract

How does competition affect corporate risk management strategies? The the-oretical literature has derived conflicting predictions. Allayannis and Ihrig (2001) predict that firms operating in more competitive industries are more likely to hedge, while Mello and Ruckes (2008) predict that firms hedge less if competition is more intense. Adam, Dasgupta, and Titman (2007) show that competition can have a positive or negative impact on the number of firms that hedge in equilibrium. While the theoretical literature has produced conflicting answers, anecdotal evidence suggests that the competitive environment does affect firms’ hedging strategies. For example, Brown (2001) reports that competitive pricing concerns in the product market, rather than the traditional models of hedging, determine how a major durable goods producer in the US hedges its FX exposures.

Suggested Citation

  • Tim R. Adam & Amrita Nain, 2013. "Strategic Risk Management and Product Market Competition," Palgrave Macmillan Books, in: Jonathan A. Batten & Peter MacKay & Niklas Wagner (ed.), Advances in Financial Risk Management, chapter 1, pages 3-29, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-137-02509-8_1
    DOI: 10.1057/9781137025098_1
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    Cited by:

    1. Liu, Jing & Xia, Senmao & Wang, Zhaoxing & Nie, Jiajia & Ameen, Nisreen & Yan, Cheng & Lim, Ming K., 2023. "How to balance economic profits and environmental protection: The impacts of cash hedging on remanufacturing firms," International Journal of Production Economics, Elsevier, vol. 258(C).
    2. Panos Kouvelis & Xiaole Wu & Yixuan Xiao, 2019. "Cash Hedging in a Supply Chain," Management Science, INFORMS, vol. 65(8), pages 3928-3947, August.
    3. Oberoi, Jaideep, 2018. "Interest rate risk management and the mix of fixed and floating rate debt," Journal of Banking & Finance, Elsevier, vol. 86(C), pages 70-86.

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