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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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Abstract

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.

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
DDC:330 Economics
Language:English
Date:2011
Deposited On:16 Jan 2012 15:36
Last Modified:30 Nov 2013 01:38
Publisher:Elsevier
ISSN:1042-9573
Publisher DOI:10.1016/j.jfi.2010.11.001
Related URLs:http://www.scor.com/images/stories/pdf/library/chairscor/chairscor_liquiditymanagement.pdf
Other Identification Number:merlin-id:6039
Citations:Web of Science®. Times Cited: 3
Google Scholar™
Scopus®. Citation Count: 3

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