Department of Economics
NBER Working Papers and Publications
|December 2010||The Real and Financial Implications of Corporate Hedging|
with Murillo Campello, Chen Lin, Hong Zou: w16622
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 financ...
Published: Murillo Campello & Chen Lin & Yue Ma & Hong Zou, 2011. "The Real and Financial Implications of Corporate Hedging," Journal of Finance, American Finance Association, vol. 66(5), pages 1615-1647, October. citation courtesy of