The impact of hedging on the market value of equity

Nelson, James M.; Moffitt, Jacquelyn Sue; Affleck-Graves, J. F.

doi:10.1016/j.jcorpfin.2005.02.003

Cited by 65 publications

(56 citation statements)

References 47 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: 93%

“…Guay & Kothari (2003) argue that the potential gains of derivative usage by non-financial corporations are less compared to changes in equity prices and cash flows. Nelson et al (2005) use a sample of 1308 corporations from 1995 to 1998 and realize that corporations using derivatives usually have abnormal returns of regarding 4WD each year. The valuation effects related to derivative usage conjointly give proof on associated agency and observance issues.…”

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: 93%

Section: Derivative Usage and Firm Valuation Effectsmentioning

confidence: 99%

Hedge Strategies of Corporate Houses

Nagahi

Nagahisarchoghaei

Soleimani

et al. 2018

JBAR

View full text Add to dashboard Cite

show abstract

“…The data on derivatives usage is collected from a variety of sources beginning with the data from a large sample collected by Nelson, Moffitt, and Affleck-Graves (2005). We then augment this sample with the data collected by Allayannis and Weston (2001), Pantzalis, Simkins, and Laux (2001) along with a small sample from our own collection.…”

Section: The Role Of Financial Derivativesmentioning

confidence: 99%

“…For example, Allayannis and Weston (2001), Carter, Rogers, and Simkins (2006) and Nelson, Moffitt, and Affleck-Graves (2005) find that the use of derivatives improves firm value.…”

Section: Introductionmentioning

confidence: 99%

Do investors value smooth performance?☆

Rountree

Weston

Allayannis

2008

Journal of Financial Economics

220

135

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This paper presents empirical evidence that cash-flow volatility is negatively valued by investors. The magnitude of the effect is substantial with a 1% increase in cash-flow volatility, resulting in approximately a 0.15% decrease in firm value. We show that this increase, however, is not associated with earnings-smoothing resulting from managers" accrual estimates. Our results are consistent with a preference by the market for less volatile cash flows and suggest that managers' efforts to produce smooth financial statements add value, but only via the cash component of earnings.

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“…costly bankruptcy, taxes, underinvestment problems), hedging activities at the firm level can increase shareholder value (Kim et al, 2006;Deshmukh and Vogt, 2005;Nelson et al 2005;Spanò, 2004;Haushalter et al, 2002).…”

Section: Cash Flow and Stock Price Exposuresmentioning

confidence: 99%

Corporate cash flow and stock price exposures to foreign exchange rate risk

Bartram

2007

Journal of Corporate Finance

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This paper estimates the foreign exchange rate exposure of 6,917 U.S. nonfinancial firms on the basis of stock prices and corporate cash flows. The results show that several firms are significantly exposed to at least one of the foreign exchange rates Canadian Dollar, Japanese Yen and Euro, and significant exposures are more frequent at longer horizons. The percentage of firms for which stock price and earnings exposures are significantly different is relatively low, though it increases with time horizon. Overall, the impact of exchange rate risk on stock prices and cash flows is similar and determined by a related set of economic factors. Keywords Corporate Cash Flow and Stock Price Exposures to Foreign Exchange Rate Risk AbstractThis paper estimates the foreign exchange rate exposure of 6,917 U.S. nonfinancial firms on the basis of stock prices and corporate cash flows. The results show that several firms are significantly exposed to at least one of the foreign exchange rates Canadian Dollar, Japanese Yen and Euro, and significant exposures are more frequent at longer horizons. The percentage of firms for which stock price and earnings exposures are significantly different is relatively low, though it increases with time horizon. Overall, the impact of exchange rate risk on stock prices and cash flows is similar and determined by a related set of economic factors.

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The impact of hedging on the market value of equity

Cited by 65 publications

References 47 publications

Hedge Strategies of Corporate Houses

Hedge Strategies of Corporate Houses

Do investors value smooth performance?☆

Corporate cash flow and stock price exposures to foreign exchange rate risk

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