Universität zu Köln

Altuntas, Muhammed, Liebenberg, Andre P., Watson, Ethan D. and Yildiz, Serhat (2017). Hedging, Cash Flows, and Firm Value: Evidence of an Indirect Effect. J. Insur. Iss., 40 (1). S. 1 - 23. TALLAHASSEE: WESTERN RISK & INSURANCE ASSOC. ISSN 2332-4244

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Abstract

This paper extends and tests the predictions of Froot, Scharfstein, and Stein's (1993) model of the relation between hedging, cash flows, and firm value. Specifically, we model the impact of derivatives hedging on firm value both directly and also indirectly through its effect on cash flow volatility. We test the model's predictions using a sample of publicly traded life insurers who report detailed information on both the extent and purpose of derivatives use. We find that both derivatives hedging and cash flow volatility are negatively related to firm value. However, consistent with our theoretical predictions, we find that hedging mitigates the negative value effect of cash flow volatility.

Item Type:	Journal Article
Creators:	Creators Email ORCID ORCID Put Code Altuntas, Muhammed UNSPECIFIED UNSPECIFIED UNSPECIFIED Liebenberg, Andre P. UNSPECIFIED UNSPECIFIED UNSPECIFIED Watson, Ethan D. UNSPECIFIED UNSPECIFIED UNSPECIFIED Yildiz, Serhat UNSPECIFIED UNSPECIFIED UNSPECIFIED
URN:	urn:nbn:de:hbz:38-239157
Journal or Publication Title:	J. Insur. Iss.
Volume:	40
Number:	1
Page Range:	S. 1 - 23
Date:	2017
Publisher:	WESTERN RISK & INSURANCE ASSOC
Place of Publication:	TALLAHASSEE
ISSN:	2332-4244
Language:	English
Faculty:	Unspecified
Divisions:	Unspecified
Subjects:	no entry
Uncontrolled Keywords:	Keywords Language Business, Finance Multiple languages
Refereed:	Yes
URI:	http://kups.ub.uni-koeln.de/id/eprint/23915