Header

UZH-Logo

Maintenance Infos

Liquidity management and corporate demand for hedging and insurance


Rochet, Jean-Charles; Villeneuve, Stéphane (2011). Liquidity management and corporate demand for hedging and insurance. Journal of Financial Intermediation, 20(3):303-323.

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.

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.

Statistics

Citations

11 citations in Web of Science®
17 citations in Scopus®
Google Scholar™

Altmetrics

Downloads

258 downloads since deposited on 16 Jan 2012
8 downloads since 12 months
Detailed statistics

Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:2011
Deposited On:16 Jan 2012 15:36
Last Modified:22 Nov 2017 09:56
Publisher:Elsevier
ISSN:1042-9573
Publisher DOI:https://doi.org/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

Download

Download PDF  'Liquidity management and corporate demand for hedging and insurance'.
Preview
Content: Accepted Version
Filetype: PDF
Size: 221kB
View at publisher