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Contribution Details

Type Journal Article
Scope Discipline-based scholarship
Title Liquidity management and corporate demand for hedging and insurance
Organization Unit
Authors
  • Jean-Charles Rochet
  • Stéphane Villeneuve
Item Subtype Original Work
Refereed Yes
Status Published in final form
Language
  • English
Journal Title Journal of Financial Intermediation
Publisher Elsevier
Geographical Reach international
ISSN 1042-9573
Volume 20
Number 3
Page Range 303 - 323
Date 2011
Abstract Text We analyze the demand for hedging and insurance by a firm facingcash-flow risks. We study how the firm’s liquidity managementpolicy interacts with two types of risk: a Brownian risk that canbe hedged through a financial derivative, and a Poisson risk thatcan be insured by an insurance contract. We find that the patternsof insurance and hedging decisions are pole apart: cash-poor firmsshould hedge but not insure, whereas the opposite is true for cashrichfirms. We also find non-monotonic effects of profitability. Thismay explain the mixed findings of empirical studies on corporatedemand for hedging and insurance.
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Digital Object Identifier 10.1016/j.jfi.2010.11.001
Other Identification Number merlin-id:6039
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