The Underinvestment Problem and Corporate Derivatives Use

Nam, Jouahn

doi:10.2307/3666413

Cited by 242 publications

(218 citation statements)

References 27 publications

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“…Furthermore, Gay and Nam (1998) agree with previous studies (Nance et al, 1993 andFroot et al, 1993) which outlined that derivatives use increases while liquidity increases and the opposite. However, Nguyen and Faff (2002) argue with their findings.…”

Section: Literature Reviewsupporting

confidence: 82%

Hedging Effectiveness in Energy Market during Economic Crisis: Better Way to Integration

Samitas¹,

Tsakalos²,

Eriotis³

2011

JEI

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This paper investigates hedging and risk management options in the energy sector. Energy firms tend to adopt risk management tools in order to cover their financial exposure. Taking into consideration that current crisis has a significant effect on their value; we check whether energy firms actually have better output when they use hedging tools. In order to measure the effectiveness of this strategy in the energy industry, we adopt Tobin's Q methodology. The sample of this study consists energy firms on a worldwide basis. The empirical evidence of this research confirms that energy firms may avoid huge economic problems when they adopt risk management methods. It is better enery market integration.• JEL Classification: G14, G15

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Section: Literature Reviewsupporting

confidence: 82%

Hedging Effectiveness in Energy Market during Economic Crisis: Better Way to Integration

Samitas¹,

Tsakalos²,

Eriotis³

2011

JEI

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“…When in financial distress, growth options are likely to be undervalued and that distress may lead to underinvestment in profitable growth opportunities. When growth firms have limited access to financial markets, they may face higher costs in raising external capital, perhaps due to the asymmetric information surrounding these growth options, in a period of time when steadier streams of cash flows are desired (see Froot, Scharfstein, and Stein, 1993;Gay and Nam, 1998). We hypothesize that the firms with greater growth options will have a positive abnormal return around hiring announcements of CROs.…”

Section: Background and Hypotheses Developmentmentioning

confidence: 99%

Information Conveyed in Hiring Announcements of Senior Executives Overseeing Enterprise-Wide Risk Management Processes

Beasley

Pagach

Warr

2008

Journal of Accounting, Auditing & Finance

239

133

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Enterprise risk management (ERM) is the process of analyzing the portfolio of risks facing the enterprise to ensure that the combined effect of such risks is within an acceptable tolerance. While more firms are adopting ERM, little academic research exists about the costs and benefits of ERM. Proponents of ERM claim that ERM is designed to enhance shareholder value; however, portfolio theory suggests that costly ERM implementation would be unwelcome by shareholders who can use less costly diversification to eliminate idiosyncratic risk. This study examines equity market reactions to announcements of appointments of senior executive officers overseeing the enterprise's risk management processes. Based on a sample of 120 announcements from 1992-2003, we find that the univariate average two-day market response is not significant, suggesting that a general definitive statement about the benefit or cost of implementing ERM is not possible. However, our multiple regression analysis reveals that there are significant relations between the magnitude of equity market returns and certain firm specific characteristics. For nonfinancial firms, announcement period returns are positively associated with firm size and the volatility of prior periods' reported earnings and negatively associated with leverage and the extent of cash on hand relative to liabilities. For financial firms, however, there are fewer statistical associations between announcement returns and firm characteristics. These results suggest that the costs and benefits of ERM are firm-specific.

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“…In practice, stock returns are the most appropriate proxy of firm performance for all-equity firms (Mehran, 1995) because a firms' stock price reflects the value of its future earnings, both from existing assets and their expected growth (Gay and Nam, 1998;Tufano, 1996). Several previous papers have indicated that a firm's total assets (TA) can be taken as a proxy for firm size (Berger and Ofek, 1995;Zhou, 2003;Zimmerman, 1983).…”

Section: Proxy Variables For Firm Size and Firm Performancementioning

confidence: 99%

Is small beautiful? Size effects of volatility spillovers for firm performance and exchange rates in tourism

Chang

Hsu

McAleer

2013

The North American Journal of Economics and Finance

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This paper examines the size effects of volatility spillovers for firm performance and exchange rates with asymmetry in the Taiwan tourism industry. The analysis is based on two conditional multivariate models, BEKK-AGARCH and VARMA-AGARCH, in the volatility specification. Daily data from 1 July 2008 to 29 June 2012 for 999 firms are used, which covers the Global Financial Crisis. The empirical findings indicate that there are size effects on volatility spillovers from the exchange rate to firm performance. Specifically, the risk for firm size has different effects from the three leading tourism sources to Taiwan, namely USA, Japan, and China. Furthermore, all the return series reveal quite high volatility spillovers (at over sixty percent) with a one-period lag. The empirical results show a negative correlation between exchange rate returns and stock returns. However, the asymmetric effect of the shock is ambiguous, owing to conflicts in the significance and signs of the asymmetry effect in the two estimated multivariate GARCH models. The empirical findings provide financial managers with a better understanding of how firm size is related to financial performance, risk and portfolio management strategies that can be used in practice.

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The Underinvestment Problem and Corporate Derivatives Use

Cited by 242 publications

References 27 publications

Hedging Effectiveness in Energy Market during Economic Crisis: Better Way to Integration

Hedging Effectiveness in Energy Market during Economic Crisis: Better Way to Integration

Information Conveyed in Hiring Announcements of Senior Executives Overseeing Enterprise-Wide Risk Management Processes

Is small beautiful? Size effects of volatility spillovers for firm performance and exchange rates in tourism

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