Hedging, Liquidity, and Productivity

68 Pages Posted: 20 Nov 2020

See all articles by Guojun Chen

Guojun Chen

Nanyang Business School

Zhongjin Lu

University of Georgia - Department of Finance

Siddharth Vij

University of Georgia Terry College of Business

Date Written: October 26, 2020


We study the effects of liquidity and productivity on corporate hedging decisions using a comprehensive dataset of oil and gas producers. Over a longer sample period than prior literature, we discover that hedging intensity is positively correlated with unrealized hedging gains and output prices, but negatively with operating cash flows. These new empirical patterns together challenge existing risk management models as unrealized hedging gains represent an unexpected shock to internal liquidity, while both operating cash flows and output prices are positively related to productivity. Incorporating procyclical collateral capacity and production-dependent depreciation into existing models can explain our empirical findings.

Keywords: Corporate hedging, Financial constraints, Productivity, Collateral constraint, Procyclical collateral capacity, Production-dependent depreciation, Hedging capacity

JEL Classification: G23, G30, G32

Suggested Citation

Chen, Guojun and Lu, Zhongjin and Vij, Siddharth, Hedging, Liquidity, and Productivity (October 26, 2020). Available at SSRN: https://ssrn.com/abstract=3719158 or http://dx.doi.org/10.2139/ssrn.3719158

Guojun Chen

Nanyang Business School ( email )

S3-B1B-76 Nanyang Avenue
Singapore, 639798

Zhongjin Lu (Contact Author)

University of Georgia - Department of Finance ( email )

Terry College of Business
Athens, GA 30602-6254
United States

Siddharth Vij

University of Georgia Terry College of Business ( email )

620 S. Lumpkin Street
Amos Hall, B324
Athens, GA 30602
United States

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