Hedging, financing, and investment decisions : a simultaneous equations framework

Chen-Miao Lin and Stephen D. Smith

The purpose of this paper is to empirically investigate the interaction between hedging, financing, and investment decisions. This work is relevant in that theoretical predictions are not necessarily identical to those in the case where only two decisions are being made. We argue that the way in which hedging affects the firms’ financing and investing decisions differs for firms with different growth opportunities. We empirically find that high-growth firms increase their investment, but not their leverage, by hedging. However, we also find that firms with few investment opportunities use derivatives to increase their leverage.

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Year of publication:	2005
Other Persons:	Lin, Chen-miao (contributor) ; Smith, Stephen Drew (contributor)
Publisher:	Atlanta, Ga. : Federal Reserve Bank of Atlanta
Subject:	investment \| financing \| hedging \| Investitionsentscheidung \| Investment decision \| Unternehmensfinanzierung \| Corporate finance \| Hedging \| Mehrgleichungsmodell \| Multiple equation model