Corporate Hedging and Productivity Shocks: Implications on Investment and Debt

Marcello Spano'

Abstract


This work compares two models of corporate hedging, to show how optimal investment, debt, and hedging strategy can be strongly dependent on the mechanism linking the firm’s internal funds to its return on investment. Approximated analytical solutions for hedging and a numerical example simulating the effects of a productivity shock are obtained to shed light on the different empirical implications associated to the two mechanisms. The latter appear to be distinguishable by observing the extent of hedging for equal values of the relevant parameters, and the correlation between investment and debt in a period of technological change. 

Keywords


Hedging; Investment; Debt; Productivity

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References


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DOI: http://dx.doi.org/10.18533/ijbsr.v10i4.1321

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International journal of business and social research (Print)
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[International Journal of Business and Social Research (IJBSR) previously published by MIR Center for Socio-Economic Research, MD, USA. From February 2018 this journal is published by the LAR Center Press, OR, USA]