The Real and Financial Implications of Corporate Hedging
We study the implications of hedging for firm financing and investment. We do so using an extensive, hand-collected dataset on corporate hedging activities. Hedging can lower the odds of negative firm realizations, reducing the expected costs of financial distress. In theory, this should ease a firm's access to credit. Using a tax-based instrumental variable approach, we find that hedgers pay lower interest spreads and are less likely to have capital expenditure restrictions in their loan agreements. These favorable financing terms, in turn, allow hedgers to invest more. Our tests characterize two exact channels (cost of borrowing and investment restrictions) through which hedging affects corporate outcomes. The analysis we present shows that hedging has a first-order effect on firm financing and investment, and provides new insights into how hedging affects corporate wealth. More broadly, our study contributes novel evidence on the real consequences of financial contracting.
|Date of creation:||Dec 2010|
|Date of revision:|
|Publication status:||published as Murillo Campello & Chen Lin & Yue Ma & Hong Zou, 2011. "The Real and Financial Implications of Corporate Hedging," Journal of Finance, American Finance Association, vol. 66(5), pages 1615-1647, October.|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.orgEmail:
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dionne, G. & Garand, M., 2000.
"Risk Management Determinants Affecting Firms' Values in the Gold Mining Industry: New Empirical Results,"
Ecole des Hautes Etudes Commerciales de Montreal-
00-11, Ecole des Hautes Etudes Commerciales de Montreal-Chaire de gestion des risques..
- Dionne, Georges & Garand, Martin, 2003. "Risk management determinants affecting firms' values in the gold mining industry: new empirical results," Economics Letters, Elsevier, vol. 79(1), pages 43-52, April.
- G. Dionne & M. Garand, 2000. "Risk Management Determinants Affecting Firms' Values in the Gold Mining Industry : New Empirical Results," THEMA Working Papers 2000-48, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
- Bessembinder, Hendrik, 1991.
"Forward Contracts and Firm Value: Investment Incentive and Contracting Effects,"
Journal of Financial and Quantitative Analysis,
Cambridge University Press, vol. 26(04), pages 519-532, December.
- Bessembinder, H., 1989. "Forward Contracts And Firm Value: Investment Incentive And Contracting Effects," Papers 89-06, Rochester, Business - Managerial Economics Research Center.
- Sudheer Chava & Michael R. Roberts, 2008. "How Does Financing Impact Investment? The Role of Debt Covenants," Journal of Finance, American Finance Association, vol. 63(5), pages 2085-2121, October.
- Shane A. Johnson, 2003. "Debt Maturity and the Effects of Growth Opportunities and Liquidity Risk on Leverage," Review of Financial Studies, Society for Financial Studies, vol. 16(1), pages 209-236.
- Georges Dionne & Thouraya Triki, 2005. "Risk Management and Corporate Governance: the Importance of Independence and Financial Knowledge for the Board and the Audit Committee," Cahiers de recherche 0515, CIRPEE.
- Sudheer Chava & Dmitry Livdan & Amiyatosh Purnanandam, 2009. "Do Shareholder Rights Affect the Cost of Bank Loans?," Review of Financial Studies, Society for Financial Studies, vol. 22(8), pages 2973-3004, August.
- Lin, Chen-Miao & Phillips, Richard D. & Smith, Stephen D., 2008. "Hedging, financing, and investment decisions: Theory and empirical tests," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1566-1582, August.
- Graham, John R. & Li, Si & Qiu, Jiaping, 2008.
"Corporate misreporting and bank loan contracting,"
Journal of Financial Economics,
Elsevier, vol. 89(1), pages 44-61, July.
- Mitchell A. Petersen & S. Ramu Thiagarajan, 2000. "Risk Measurement and Hedging: With and Without Derivatives," Financial Management, Financial Management Association, vol. 29(4), Winter.
- Heitor Almeida & Murillo Campello & Bruno Laranjeira & Scott Weisbenner, 2009. "Corporate Debt Maturity and the Real Effects of the 2007 Credit Crisis," NBER Working Papers 14990, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:16622. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.