Abstract

http://ssrn.com/abstract=1711254
 
 

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Input Hedging, Output Hedging and Market Power


David De Angelis


Rice University - Jesse H. Jones Graduate School of Business

S. Abraham Ravid


Yeshiva University - Syms School of Business

September 2014

Johnson School Research Paper Series No. 40-2010

Abstract:     
We argue that input and output hedging are very different. Furthermore, if firms are able to influence output prices, output hedging can create incentives for profit reducing over-production, which are not present in competitive markets. Thus we expect firms to hedge outputs less often than inputs and firms with market power should hedge outputs less often than competitive firms. We test these predictions on a sample of S&P500 firms from 2001 to 2005. The findings are consistent with our conjectures. Firms with output market power are less likely to hedge commodity risk. A placebo test shows that the same empirical regularities do not apply to currency hedging where there are competitive international markets. Finally, our empirical framework, which differentiates between input and output hedging, can also help reconcile conflicting results in prior studies.

Number of Pages in PDF File: 50

Keywords: Corporate Hedging, Market Power

JEL Classification: G3, G30, G32, L13

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Date posted: November 19, 2010 ; Last revised: October 1, 2014

Suggested Citation

De Angelis, David and Ravid, S. Abraham, Input Hedging, Output Hedging and Market Power (September 2014). Johnson School Research Paper Series No. 40-2010. Available at SSRN: http://ssrn.com/abstract=1711254

Contact Information

David De Angelis (Contact Author)
Rice University - Jesse H. Jones Graduate School of Business ( email )
6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States
HOME PAGE: http://www.de-angelis.com
S. Abraham Ravid
Yeshiva University - Syms School of Business ( email )
United States
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