TY  - JOUR
AU  - Campello,Murillo
AU  - Lin,Chen
AU  - Ma,Yue
AU  - Zou,Hong
TI  - The Real and Financial Implications of Corporate Hedging
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16622
PY  - 2010
Y2  - December 2010
UR  - http://www.nber.org/papers/w16622
L1  - http://www.nber.org/papers/w16622.pdf
N1  - Author contact info:
Murillo Campello
Johnson Graduate School of Management
Cornell University
114 East Avenue
369 Sage Hall
Ithaca, NY 148531-6201
Tel: 607-255-1282
E-Mail: campello@cornell.edu

Chen Lin
Department of Finance,
Chinese University of Hong Kong,
Shatin, N.T., Hong Kong
E-Mail: chenlin@baf.msmail.cuhk.edu.hk

Yue Ma
Department of Economics
Lingnan University
Hong Kong
E-Mail: yuema@Ln.edu.hk

Hong Zou
P7318, Academic Building
83 Tat Chee Avenue
Hong Kong 
E-Mail: hongzou@cityu.edu.hk
AB  - We study the implications of hedging for firm financing and investment. We do so using an extensive, hand-collected dataset on corporate hedging activities. Hedging can lower the odds of negative firm realizations, 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 find 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 we present shows that hedging has a first-order effect on firm financing and investment, and provides new insights into how hedging affects corporate wealth. More broadly, our study contributes novel evidence on the real consequences of financial contracting.
ER  -