Corporate use of derivatives and excess value of diversification

Lin, Jianxun; Pantzalis, Christos; Park, Jung Chul

doi:10.1016/j.jbankfin.2006.07.005

Cited by 31 publications

(27 citation statements)

References 62 publications

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“…Acquirers using derivatives are more likely to pursue diversifying M&As than those that are nonusers. This finding is consistent with Lin, Pantzalis, and Park (2007b) who report evidence that hedging reduces the negative valuation effect of corporate diversification.…”

Section: Does Derivatives Use Reduce the Level Of Information Asymsupporting

confidence: 92%

“…This assumption is fairly reasonable, based on the evidence of past studies. For example, Lin, Pantzalis, and Park (2007b) used the same database as this paper (Swaps Monitor Publications) and demonstrated that derivative policies remained "sticky" over the 1992-1996 period, which is the same period as the one examined in our study. We also find that 76% of sample firms do not change their derivatives use policy over the five-year period and 90% of sample firms keep the same policy at least two years.…”

Section: Figure 1 Long-term Stock Performances Of Subsamples Based Omentioning

confidence: 86%

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Derivatives Use, Information Asymmetry, and MNC Post‐Acquisition Performance

Lin

Pantzalis

Park

2009

Financial Management

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"We utilize a sample of US acquiring firms that engaged in international M&As to document the effects of corporate derivatives use on post-M&A long-term performance. We find that derivatives users outperform nonusers. Furthermore, we find that acquirers with derivative policies that are more comprehensive and sophisticated outperform those with less comprehensive and sophisticated policies. They, in turn, outperform acquirers with no existing policies in place. Our results are consistent with the notion that the use of derivatives lowers information asymmetry related agency problems. Furthermore, our evidence indicates that derivatives use is an important corporate activity that has a profound effect on post-M&A performance." Copyright (c) 2009 Financial Management Association International.

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Section: Does Derivatives Use Reduce the Level Of Information Asymsupporting

confidence: 92%

Section: Figure 1 Long-term Stock Performances Of Subsamples Based Omentioning

confidence: 86%

Derivatives Use, Information Asymmetry, and MNC Post‐Acquisition Performance

Lin

Pantzalis

Park

2009

Financial Management

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“…Prior studies regarding derivatives hedging (Allayannis and Weston, 2001; Lin et al, 2007) typically examine the effect of the incidence of hedging on firm value 14 . In contrast, my examination focuses on the impact of the extent of property insurance use on firm value for three reasons.…”

Section: Empirical Analysis: Property Insurance Use and Firm Valuementioning

confidence: 99%

“…Any errors or omissions remain my own. and Fernando, 2006;Carter, Rogers, and Simkins, 2006;Lin, Pantzalis, and Park, 2007;Mackay and Moeller, 2007;Bartram, Brown, and Fehle, 2009). 3 As a result, little is known about the value effect of alternative means of hedging (via insurance) despite their prevalence (Petersen and Thiagarajan, 2000).…”

mentioning

confidence: 99%

Hedging Affecting Firm Value via Financing and Investment: Evidence from Property Insurance Use

Zou

2010

Financial Management

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"I provide evidence about the value effects of alternative risk management by examining corporate purchase of property insurance, a commonly used pure hedge of asset-loss risks. Using an insurance data set from China, I find that there is an inverted U-shape effect of the extent of property insurance use on firm value measured by several versions of Tobin's Q. Therefore, the use of property insurance, to a certain degree, has a positive effect on firm value; however, over insurance appears detrimental to firm value. Given that the inflection points occur at relatively high levels of the observed insurance spending, insurance use appears beneficial to the majority of my sample firms. The estimated average hedging premium is about 1.5%. I demonstrate that an avenue for insurance to create value in China is that it helps firms secure valuable new debt financing and enhance investment." Copyright (c) 2010 Financial Management Association International.

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“…Bens and Monahan (2004) find that enhanced voluntary disclosure (as proxied by higher AIMR rankings) mitigates information asymmetry and is associated with a smaller diversification discount. Lin et al (2007) suggest that diversified firms can benefit from risk management because hedging may reduce information asymmetry and thus mitigate the diversification discount. Overall, the studies mentioned suggest that information asymmetry problem is (at least partly) responsible for the diversification discount, and firms with some mechanism that lowers information asymmetry may be less likely to suffer a diversification discount.…”

Section: Corporate Diversification and Valuationmentioning

confidence: 99%