Advances in Financial Risk Management: Corporates, by Jonathan A. Batten, Peter MacKay, P. Mackay, N. Wagner

By Jonathan A. Batten, Peter MacKay, P. Mackay, N. Wagner

The most recent examine on measuring, dealing with and pricing monetary hazard. 3 extensive views are thought of: monetary probability in non-financial organisations; in monetary intermediaries similar to banks; and at last in the context of a portfolio of securities of other credits caliber and marketability.

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In less competitive industries, the net exposure of derivatives users declines relative to nonusers as the fraction of derivatives users increases. This relation is absent in more competitive industries. In the case of negative foreign exchange exposures, we find a positive coefficient on the interaction term; in other words, derivatives users have relatively lower (closer to zero) exposures if the fraction of derivatives users in the industry is high. Although the interaction term is statistically significant in both the more- and less-competitive subsamples, the size of the coefficient is – again – larger in the less competitive industry sub-sample.

4 shows that, as in Allayannis and Weston (1999), the price-cost margin is significantly negatively correlated with the probability of hedging. However, when the interaction of firm size and price-cost margin is included (Column VI), we see that the pricecost margin itself is positively related to the probability to hedge, while the interaction between size and price-cost margin has a significant negative relation with the probability of hedging. This analysis suggests that larger firms behave in the manner predicted by Allayannis and Ihrig (2001) – hedge when profit margins are tight and shocks can’t be passed through to prices.

7 percent in more competitive industries and 3 percent in less competitive industries. These univariate comparisons show that the degree of competition is negatively correlated with the prevalence and the extent of hedging. 3, we examine the relation between competition and the prevalence of derivatives usage in a multivariate setting in order to control for other factors that may also impact firms’ decisions to use derivatives. Since there are a significant number of industries in which no firm uses derivatives, we estimate industry-level tobit regressions.

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