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Hedging, Financing and Investment Decisions: A Simultaneous Equations Framework
Author(s) -
Lin ChenMiao,
Smith Stephen D.
Publication year - 2007
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.2007.00167.x
Subject(s) - leverage (statistics) , investment (military) , internal financing , investment decisions , finance , business , leverage effect , economics , financial economics , microeconomics , information asymmetry , behavioral economics , volatility (finance) , computer science , political science , law , autoregressive conditional heteroskedasticity , machine learning , politics
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.