Hedging, Liquidity, and Productivity

59 Pages Posted: 20 Nov 2020 Last revised: 24 Mar 2021

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: March 7, 2021

Abstract

to study the effects of liquidity and productivity on corporate hedging, we extend dynamic risk management models by incorporating procyclical collateral capacity and units-of-production depreciation and test the key predictions by using a comprehensive data set of oil and gas producers. After carefully isolating unpredictable shocks to firm liquidity and productivity, we find hedging intensity is positively correlated with liquidity and productivity. Furthermore, firms with more procyclical collateral capacity exhibit a more positive hedging-productivity correlation and firms with more flexible production technologies exhibit a more negative correlation between hedging and operating cash flows. These results challenge existing models but are consistent with our theory.

Keywords: Corporate hedging, Financial constraints, Productivity, Collateral constraint, Procyclical collateral capacity, Unit-of-production depreciation, Hedging capacity.

JEL Classification: G23, G30, G32

Suggested Citation

Chen, Guojun and Lu, Zhongjin and Vij, Siddharth, Hedging, Liquidity, and Productivity (March 7, 2021). 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
Singapore

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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