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Article: The Real and Financial Implications of Corporate Hedging

TitleThe Real and Financial Implications of Corporate Hedging
Authors
Issue Date2011
Citation
Journal Of Finance, 2011, v. 66 n. 5, p. 1615-1647 How to Cite?
AbstractWe study the implications of hedging for corporate financing and investment. We do so using an extensive, hand-collected data set on corporate hedging activities. Hedging can lower the odds of negative realizations, thereby reducing the expected costs of financial distress. In theory, this should ease a firm's access to credit. Using a tax-based instrumental variable approach, we show that hedgers pay lower interest spreads and are less likely to have capital expenditure restrictions in their loan agreements. These favorable financing terms, in turn, allow hedgers to invest more. Our tests characterize two exact channels-cost of borrowing and investment restrictions-through which hedging affects corporate outcomes. The analysis shows that hedging has a first-order effect on firm financing and investment, and provides new insights into how hedging affects corporate value. More broadly, our study contributes novel evidence on the real consequences of financial contracting. © 2011 the American Finance Association.
Persistent Identifierhttp://hdl.handle.net/10722/188467
ISSN
2015 Impact Factor: 5.105
2015 SCImago Journal Rankings: 14.546
SSRN
ISI Accession Number ID
References

 

DC FieldValueLanguage
dc.contributor.authorCampello, Men_US
dc.contributor.authorLin, Cen_US
dc.contributor.authorMa, Yen_US
dc.contributor.authorZou, Hen_US
dc.date.accessioned2013-09-03T04:07:45Z-
dc.date.available2013-09-03T04:07:45Z-
dc.date.issued2011en_US
dc.identifier.citationJournal Of Finance, 2011, v. 66 n. 5, p. 1615-1647en_US
dc.identifier.issn0022-1082en_US
dc.identifier.urihttp://hdl.handle.net/10722/188467-
dc.description.abstractWe study the implications of hedging for corporate financing and investment. We do so using an extensive, hand-collected data set on corporate hedging activities. Hedging can lower the odds of negative realizations, thereby reducing the expected costs of financial distress. In theory, this should ease a firm's access to credit. Using a tax-based instrumental variable approach, we show that hedgers pay lower interest spreads and are less likely to have capital expenditure restrictions in their loan agreements. These favorable financing terms, in turn, allow hedgers to invest more. Our tests characterize two exact channels-cost of borrowing and investment restrictions-through which hedging affects corporate outcomes. The analysis shows that hedging has a first-order effect on firm financing and investment, and provides new insights into how hedging affects corporate value. More broadly, our study contributes novel evidence on the real consequences of financial contracting. © 2011 the American Finance Association.en_US
dc.languageengen_US
dc.relation.ispartofJournal of Financeen_US
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.rightsThis is the pre-peer reviewed version of the following article: [Journal Of Finance, 2011, v. 66 n. 5, p. 1615-1647], which has been published in final form at [http://dx.doi.org/10.1111/j.1540-6261.2011.01683.x]. Authors are not required to remove preprints posted prior to acceptance of the submitted version.-
dc.titleThe Real and Financial Implications of Corporate Hedgingen_US
dc.typeArticleen_US
dc.identifier.emailZou, H: hongzou@hku.hken_US
dc.identifier.authorityZou, H=rp01800en_US
dc.description.naturepreprinten_US
dc.identifier.doi10.1111/j.1540-6261.2011.01683.xen_US
dc.identifier.scopuseid_2-s2.0-80053087568en_US
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-80053087568&selection=ref&src=s&origin=recordpageen_US
dc.identifier.volume66en_US
dc.identifier.issue5en_US
dc.identifier.spage1615en_US
dc.identifier.epage1647en_US
dc.identifier.isiWOS:000295098400005-
dc.publisher.placeUnited Statesen_US
dc.identifier.ssrn1544048-
dc.identifier.scopusauthoridCampello, M=6603697614en_US
dc.identifier.scopusauthoridLin, C=25630694300en_US
dc.identifier.scopusauthoridMa, Y=7404701175en_US
dc.identifier.scopusauthoridZou, H=48663306300en_US

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