Loss, Frederic (2002) Optimal hedging strategies and interactions between firms. Discussion paper, 399. Financial Markets Group, London School of Economics and Political Science, London, UK.
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Abstract
This paper studies corporate risk management in a context with financial constraints and imperfect competition on the product market. We show that the interactions between firms heavily affect their hedging demand. As a general rule, the firms’ hedging demand decreases with the correlation between firms’ internal funds and investment opportunities. We show that when the hedging demand of a firm is high in the case where investments are strategic substitutes, its hedging demand is low in the case where investments are strategic complements, and vice versa. Finally, we also propose another interpretation of our model in terms of technical choice.
| Item Type: | Monograph (Discussion Paper) |
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| Official URL: | http://fmg.lse.ac.uk |
| Additional Information: | © 2002 The Author |
| Uncontrolled Keywords: | Hedging, Interactions between firms, Credit rationing |
| Library of Congress subject classification: | H Social Sciences > HF Commerce H Social Sciences > HG Finance H Social Sciences > HB Economic Theory |
| Journal of Economic Literature Classification System: | G - Financial Economics > G3 - Corporate Finance and Governance D - Microeconomics > D2 - Production and Organizations > D29 - Other G - Financial Economics > G2 - Financial Institutions and Services |
| Sets: | Research centres and groups > Financial Markets Group (FMG) Collections > Economists Online |
| Rights: | http://www.lse.ac.uk/library/rights/LSERO.htm |
| Identification Number: | 399 |
| URL: | http://eprints.lse.ac.uk/24903/ |
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