W. Sun
Financial Hedging, Corporate Cash Policy, and the Value of Cash
Sun, W.; Yin, C.; Zeng, Y.
Abstract
We study the implications of financial hedging for corporate cash policy and the value of cash holdings. Using a web crawler program to collect data on the use of financial derivatives between 1993 and 2016, we find that US public firms with financial hedging programs have smaller cash reserves but a higher value of cash than firms without hedging contracts in place. Our empirical results are robust when controlling for potential endogeneity issues, corporate governance, cash regimes, and alternative measures of cash holdings. Further, we find that financial hedging not only increases the investment sensitivity to internal cash, but also has a positive effect on investment efficiency. The positive effect of financial hedging on the value of cash is more pronounced for firms with more financial constraints, higher information asymmetry, and weaker corporate governance. Collectively, our paper highlights the importance of corporate cash policy as a channel through which financial risk management increases firm value.
Citation
Sun, W., Yin, C., & Zeng, Y. (2022). Financial Hedging, Corporate Cash Policy, and the Value of Cash. British Journal of Management, 33(3), 1271-1303. https://doi.org/10.1111/1467-8551.12520
Journal Article Type | Article |
---|---|
Acceptance Date | Apr 27, 2021 |
Online Publication Date | Jun 11, 2021 |
Publication Date | Jul 5, 2022 |
Deposit Date | Apr 28, 2021 |
Publicly Available Date | Jul 23, 2021 |
Journal | British Journal of Management |
Print ISSN | 1045-3172 |
Electronic ISSN | 1467-8551 |
Publisher | Wiley |
Peer Reviewed | Peer Reviewed |
Volume | 33 |
Issue | 3 |
Pages | 1271-1303 |
DOI | https://doi.org/10.1111/1467-8551.12520 |
Public URL | https://durham-repository.worktribe.com/output/1276444 |
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Copyright Statement
Advance online version © 2021 The Authors. British Journal of Management published by John Wiley & Sons Ltd on behalf of British Academy of Management
This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.
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