Download This PaperHow Do Firms Hedge Risks? Empirical Evidence from U.S. Oil and Gas Producers
74 Pages Posted: 7 Apr 2013 Last revised: 5 Jan 2023
Date Written: December 26, 2013
Abstract
This paper investigates the determinants of hedging strategy choice. We introduce different dynamic discrete choice frameworks with random effects to mitigate unobserved heterogeneity and state dependence. Using a new dataset on the hedging activities of 150 US oil and gas producers, we find strong evidence that hedging strategy is influenced by investment opportunities, the correlation between generated cash flows and investment expenditure, oil and gas market conditions, financial constraints, and oil and gas production specificities (i.e., production uncertainty, production flexibility, and price-quantity correlation).
Keywords: Risk management, derivative choice, hedging strategy, oil and gas industry
JEL Classification: D8, G32
Suggested Citation: Suggested Citation
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