Open AccessCapital Market Frictions, Leasing and Hedging
Author(s) -
Vasantha Rao Chigurupati
Publication year - 2020
Publication title -
international journal of accounting and finance studies
Language(s) - English
Resource type - Journals
eISSN - 2576-201X
pISSN - 2576-2001
DOI - 10.22158/ijafs.v3n2p45
Subject(s) - endogeneity , hedge , information asymmetry , economics , econometrics , lease , sample (material) , empirical evidence , financial economics , finance , ecology , philosophy , chemistry , chromatography , epistemology , biology
This paper examines the hitherto unexplored effect of lease intensity on hedging. Using a sample of 218 small and large non-financial firms drawn from 2006 to 2010, we find that firms leasing more of their Property, Plant and Equipment (PPE) use less financial derivatives, consistent with the theoretical predictions of Rampini and Viswanathan (2010). Further, using broad market microstructure based measures of information asymmetry, we offer empirical evidence consistent with theory that firms with higher information asymmetry hedge more. These results are robust to several alternative measurements of key variables, different regression specifications, estimation techniques and corrections for endogeneity.