Work

Financial Constraints, Competition, and Hedging in Industry Equilibrium

Year: 2007

Type: article

Abstract: ABSTRACT We analyze the hedging decisions of firms, within an equilibrium setting that allows us to examine how a firm's hedging choice depends on the hedging choices of its competitors. Within this equilibrium some firms hedge while others do not, even though all firms are ex ante identical. The fraction of firms that hedge depends on industry characteristics, such as the number of firms in the industry, the elasticity of demand, and the convexity of production costs. Consistent with prior empirical findings, the model predicts that there is more heterogeneity in the decision to hedge in the most competitive industries.

Source: The Journal of Finance

DOI: 10.1111/j.1540-6261.2007.01280.x

Authors: TIM ADAM, SUDIPTO DASGUPTA, SHERIDAN TITMAN

Institutions: Tel Aviv University, National University of Singapore, Hong Kong University of Science and Technology, Massachusetts Institute of Technology

Language: English

Topic: Risk Management in Financial Firms

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2098545879

FWCI: 28.86

Cites: 34

Cited by: 161

Related to: 10