Permanent URL to this publication: http://dx.doi.org/10.5167/uzh-54323
Rochet, Jean-Charles; Villeneuve, Stéphane (2011). Liquidity management and corporate demand for hedgingand insurance. Journal of Financial Intermediation, 20(3):303-323.
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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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|Item Type:||Journal Article, refereed, original work|
|Communities & Collections:||03 Faculty of Economics > Department of Banking and Finance|
|Dewey Decimal Classification:||330 Economics|
|Deposited On:||16 Jan 2012 15:36|
|Last Modified:||05 Apr 2016 15:20|
|Other Identification Number:||merlin-id:6039|
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