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- Title
Does Hedging Affect Firm Value? Evidence from a Natural Experiment.
- Authors
Gilje, Erik P.; Taillard, Jérôme P.
- Abstract
We exploit an exogenous change in basis risk in the oil and gas industry to analyze the channels through which hedging affects firm value. Using a difference-in-differences framework, we find that firms affected by a basis risk shock reduce investment, have lower valuations, sell assets, and reduce debt. Our findings are driven by firms with ex ante high leverage. Overall, our results provide evidence that reducing the probability of financial distress and underinvestment risk are first-order channels through which hedging affects firm value.
- Subjects
CANADA; HEDGING (Finance); ENTERPRISE value; ENERGY industries; FINANCE; PETROLEUM industry; INVESTMENTS
- Publication
Review of Financial Studies, 2017, Vol 30, Issue 12, p4083
- ISSN
0893-9454
- Publication type
Article
- DOI
10.1093/rfs/hhx069