Hedging, Financing and Investment Decisions: A Simultaneous Equations Framework

19 Pages Posted: 4 Jun 2007

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Abstract

We empirically investigate the interactions among hedging, financing, and investment decisions. We argue that the way in which hedging affects a firm's financing and investing decisions differs for firms with different growth opportunities. We find that high growth firms increase their investment, but not leverage, by hedging. However, we also find that firms with few investment opportunities use derivatives to increase their leverage.

Suggested Citation

Lin, Chen-Miao and Smith, Stephen Dewitt, Hedging, Financing and Investment Decisions: A Simultaneous Equations Framework. The Financial Review, Vol. 42, No. 2, pp. 191-209, May 2007. Available at SSRN: https://ssrn.com/abstract=990902 or http://dx.doi.org/10.1111/j.1540-6288.2007.00167.x

Chen-Miao Lin (Contact Author)

Clayton State University ( email )

2000 Clayton State Boulevard
Morrow, GA 30260
United States

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