Firm Value and Hedging: Evidence from U.S. Oil and Gas Producers

Jin, Yong; Jorion, Philippe

doi:10.1111/j.1540-6261.2006.00858.x

Cited by 542 publications

(451 citation statements)

References 31 publications

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“…These findings are consistent with the other studies that showed no relation between firm value and the utilization of derivatives (Jin & Jorion, 2006;Lookman, 2009;Pantzalis et al, 2001;Guay & Kothari, 2003;Nelson et al, 2005).…”

Section: Discussionsupporting

confidence: 83%

“…These studies (Carter et al, 2006;Nain, 2005;Mello & Parsons, 2000;Mian, 1996;Guay, 1999;Smithson, 1996;Mayers & Smith, 1987 fail to find evidence of a positive relation between hedging and firm values. Jin & Jorion (2006) use a sample of 119 U.S. oil and gas producers over the 1998-2001 sample period and realize no relation between firm prices and the utilization of derivatives. Lookman (2009) uses a sample of 125 exploration and production (E&P) firms over the 1992-1994 and 1999-2000 sample periods and conjointly find no relation between firm value and the utilization of derivatives within the mixture.…”

Section: Derivative Usage and Firm Valuation Effectsmentioning

confidence: 99%

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Hedge Strategies of Corporate Houses

Nagahi

Nagahisarchoghaei

Soleimani

et al. 2018

JBAR

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This paper compares and contrasts the hedge strategies through derivative instruments by Indian and USA corporate houses. The derivative instruments have little predictive power in explaining corporate hedging strategies both in the USA and Indian firms. The purpose of the study is to provide a setting where reconciling conflicting results from the literature may be appropriate and to compare different hedge strategies in a specific period in two different countries (USA and India). The evidence based on multivariate empirical relations between hedging in American firms and firm's characteristics fails to provide any support for any of the tested hypotheses except for profitability represented by dividend yield. We conclude that the relationship between hedging and dividend yield in the proposed model is negative. The same analysis conducted for Indian companies has shown that there is no statistically significant explanatory variable for hedging; therefore, it is not dependent on any of the predicted theories of hedging. On the other hand, we find some significant relationships between firms' characteristics. Large Indian firms use internal hedge strategies rather than market strategies, such as derivatives. The derivative market development then could play a major role in terms of risk management of firms across countries.

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Section: Discussionsupporting

confidence: 83%

Section: Derivative Usage and Firm Valuation Effectsmentioning

confidence: 99%

Hedge Strategies of Corporate Houses

Nagahi

Nagahisarchoghaei

Soleimani

et al. 2018

JBAR

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show abstract

“…21 These studies are Allayannis and Weston (2001), Campello et al (2011), Choi et al (2015, Donohoe (2015), Géczy et al (1997), Jin and Jorion (2006), Nance et al (1993), Pérez-González andYun (2013), Pincus and Rajgopal (2002), Tufano (1996), which can be seen as representatives of 20 In addition to a mixed effects multilevel model as displayed in Table 6, we also applied a simple ordinary least squares model as shown in Online Appendix F. Overall, both models show quite similar results. 21 For the selection of studies we used the VHB-JOURQUAL3 and incorporate studies, which are classified as A?.…”

Section: Discussionmentioning

confidence: 99%

What do we really know about corporate hedging? A meta-analytical study

Geyer‐Klingeberg

Hang

Rathgeber

et al. 2017

Bus Res

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This paper employs meta-analysis to aggregate and systematically analyze the mixed empirical evidence on the determinants of corporate hedging reported in 132 previously published studies covering data from more than 73,000 firms. Among the fourteen proxy variables analyzed by multivariate meta-analysis, three variables emerge as reliable explanatory factors for corporate hedging decisions supporting the bankruptcy and financial distress hypothesis: dividend yield (positive sign), liquidity (negative sign), and firm size (positive sign). Moreover, for tax-loss carry forwards (positive sign) and research and development (positive sign), our findings indicate a weak impact on corporate hedging behavior reflecting tax reasons, the coordination between financing and investment, and agency conflicts between shareholders and debtholders. Regarding the asymmetric information and agency conflicts of equity hypothesis, we find no explanatory power. The further analysis of heterogeneity via meta-regression reveals several factors that determine the mixed empirical evidence reported in previous studies. First, the results indicate that studies analyzing firms from North America report, on average, a lower impact of leverage on the corporate hedging decision. Moreover, studies examining more recent data samples tend to find a weaker relation between tangible assets and hedging, R&D and hedging, respectively. Overall, our results encourage scientific research to put more emphasis on finer-grained examinations of hedging variations and to discover rationales of corporate hedging extending classical financial theories.

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“…However, Guay and Kothari (2003) argue that the claimed effect of derivative hedging on firm valuation is implausibly large. Jin and Jorion (2006) find no relation between hedging and firm value in a sample of oil and gas producers that should benefit greatly from hedging. Adam, Dasgupta, and Titman (2007) examine a firm's hedging decision and suggest that even financially constrained firms can have an incentive not to hedge.…”

Section: A Basic Setupmentioning

confidence: 99%

The Dynamics of Performance Volatility and Firm Valuation

Daniel¹,

Su²

2017

J. Financ. Quant. Anal.

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We construct a model to illustrate the dynamics of cash-flow volatility (CFV) and firm valuation. As a firm progressively invests in its growth opportunities, its book value increases and catches up with its market value, reducing the valuation multiple (Q). CFV decreases because of the diversification effect of investing in more market segments. We document a positive CFV-Q association, which varies with firm size, investment opportunities, and the correlation across market segments. Empirical findings strongly support the model's predictions and are robust to alternative explanations offered by extant studies on firm growth, volatility, and valuation.

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Firm Value and Hedging: Evidence from U.S. Oil and Gas Producers

Cited by 542 publications

References 31 publications

Hedge Strategies of Corporate Houses

Hedge Strategies of Corporate Houses

What do we really know about corporate hedging? A meta-analytical study

The Dynamics of Performance Volatility and Firm Valuation

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