The Real and Financial Implications of Corporate Hedging

Campello, Murillo; Lin, Chen; Ma, Yue; Zou, Hong

doi:10.3386/w16622

Cited by 22 publications

(39 citation statements)

References 31 publications

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“…To note, Campello et al . () and Nelson et al . () provide no clear economic argument as to whether the findings are ex‐ante similar or different across risk classes.…”

Section: Conceptual Framework Data and Methodologymentioning

confidence: 86%

“…Campello et al . () explain that firms that manage interest rate and currency risks pay lower credit spreads and face less capital expenditure restrictions. This facilitates more investment, which subsequently enhances firm value.…”

Section: Conceptual Framework Data and Methodologymentioning

confidence: 99%

“…Campello et al . () consider both interest rate and currency hedging by firms over a 7‐year period, but does not explicitly distinguish between the two risk classes. An exception is Nelson et al .…”

Section: Conceptual Framework Data and Methodologymentioning

confidence: 99%

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Corporate Hedging and the High Idiosyncratic Volatility Low Return Puzzle

et al. 2017

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The literature offers various explanations to either support or refute the Ang et al. () high idiosyncratic volatility low return puzzle. Fu () finds a significantly positive contemporaneous relation between return and exponential generalized autoregressive conditional heteroskedastic idiosyncratic volatility. We use corporate hedging to shed light on this puzzle. Conceptually, idiosyncratic volatility matters to investors who face limits to diversification. But limits to diversification become less relevant for firms that consistently hedge. We confirm the main finding in Fu (), but only for firms that do not consistently hedge. For firms that adopt a consistent hedging policy, idiosyncratic volatility, whether contemporaneous or lagged, is insignificant in Fama–MacBeth regressions, controlling for size, book‐to‐market, momentum, liquidity, and industry effects.

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“…To note, Campello et al . () and Nelson et al . () provide no clear economic argument as to whether the findings are ex‐ante similar or different across risk classes.…”

Section: Conceptual Framework Data and Methodologymentioning

confidence: 86%

Section: Conceptual Framework Data and Methodologymentioning

confidence: 99%

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Corporate Hedging and the High Idiosyncratic Volatility Low Return Puzzle

et al. 2017

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“…Further, Campello et al. () link hedging with the ability to pursue value maximizing capital expenditures and establishing a direct relationship between hedging, financing, and firm value. That is, hedging reduces financing costs and also provides the stability needed to pursue investment opportunities.…”

Section: Introductionmentioning

confidence: 99%

“…By examining private credit agreements in the syndicated loan market between 1996 and 2002, Campello et al. () observe that hedging firms have greater access to credit and at lower cost. These improved financing terms allow hedgers to invest more.…”

Section: Introductionmentioning

confidence: 99%

Working Capital Management, the Credit Crisis, and Hedging Strategies: Canadian Evidence

Kieschnick

Rotenberg

2015

Financ Manag Account

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This study uses a sample of Canadian natural resource firms during the global financial crisis (GFC) of 2007–2008 to examine the influence of firm hedging strategies on their working capital management. Our evidence implies that increased cash holdings and derivatives are alternative ways of hedging risk, and also provides another perspective on the U.S. “trapped cash” controversy as our sample firms are not R&D intensive and do not face the same tax regime as U.S. multinationals.

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The interaction of risk management tools: Financial hedging, corporate diversification and liquidity

Jiang

Feng

2020

Int. J Fin Econ

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What kind of firm benefits more from financial hedging, the focused or diversified? In fact, the benefit of financial hedging depends on diversification policies. By analyzing the interaction between financial hedging and corporate diversification in a theoretical model for a financially constrained firm, we find that focused firms have relatively higher marginal value of hedging in general static environment. However, dynamic analysis results show that an important synergy between financial hedging and diversification would reverse this result. Exercising corporate diversification policies has direct negative effect on liquidity and operating risk, thereby increasing the marginal value of financial hedging. As a result, it is possible that their relationship is complementary in a dynamic environment since these tools increase firm value in different channels. This suggests that firms could use financial hedging in the process of diversification if it is possible. Our findings also emphasize the importance of risk management capabilities which is hardly observable but contributes much to firm value.

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The Real and Financial Implications of Corporate Hedging

Cited by 22 publications

References 31 publications

Corporate Hedging and the High Idiosyncratic Volatility Low Return Puzzle

Corporate Hedging and the High Idiosyncratic Volatility Low Return Puzzle

Working Capital Management, the Credit Crisis, and Hedging Strategies: Canadian Evidence

The interaction of risk management tools: Financial hedging, corporate diversification and liquidity

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