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The Impact of Hedging on Stock Return and Firm Value: New Evidence from Canadian Oil and Gas Companies

Author

Listed:
  • Chang Dan
  • Hong Gu
  • Kuan Xu

    () (Department of Economics and Department of Mathematics and Statistics, Dalhousie University)

Abstract

This paper analyzes the impact of hedging activities of large Canadian oil and gas companies on their stock returns and firm value. Differing from the existing literature this research finds that some of these relationships are nonlinear based on the framework of nonlinear generalized additive models. The research based on this more general methodology reveals some interesting findings on oil and gas hedging activities. The large Canadian oil and gas firms are able to use hedging to protect downside risk against the unfavorable oil and gas price changes. But oil hedging appears to be more effective in protecting stock returns than gas hedging is when downside risk presents. In addition, oil and gas reserves are more likely to play a positive (negative) role when the oil and gas prices are increasing (decreasing). Finally, hedging, in particular hedging on gas, together with profitability, investment and leverage, has certain impacts on firm value.

Suggested Citation

  • Chang Dan & Hong Gu & Kuan Xu, 2005. "The Impact of Hedging on Stock Return and Firm Value: New Evidence from Canadian Oil and Gas Companies," Department of Economics at Dalhousie University working papers archive hedging, Dalhousie, Department of Economics.
  • Handle: RePEc:dal:wparch:hedging
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    File URL: http://www.economics.dal.ca/RePEc/dal/wparch/hedging.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Kapitsinas, Spyridon, 2008. "The Impact of Derivatives Usage on Firm Value: Evidence from Greece," MPRA Paper 10947, University Library of Munich, Germany.

    More about this item

    Keywords

    oil; gas; hedging; return; firm value; general additive models ; Canada;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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