Journal ArticleDOI
The Determinants of Firms' Hedging Policies
Clifford W. Smith,René M. Stulz +1 more
TLDR
In this article, the authors develop a positive theory of the hedging behavior of value-maximizing corporations, treating hedging by corporations simply as one part of the firm's financing decisions.Abstract:
We develop a positive theory of the hedging behavior of value-maximizing corporations. We treat hedging by corporations simply as one part of the firm's financing decisions. We examine (1) taxes, (2) contracting costs, and (3) the impact of hedging policy on the firm's investment decisions as explanations of the observed wide diversity of hedging practices among large, widely-held corporations. Our theory provides answers to the questions: (1) why some firms hedge and others do not; (2) why firms hedge some risks but not others; and (3) why some firms hedge their accounting risk exposure while others hedge their economic value.read more
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Journal ArticleDOI
The investment opportunity set and corporate financing, dividend, and compensation policies☆
Clifford W. Smith,Ross L. Watts +1 more
TL;DR: The authors examine explanations for corporate financing-, dividend-, and compensation-policy choices and find that contracting theories are more important in explaining cross-sectional variation in observed financial, dividend, and compensation policies than either tax-based or signaling theories.
Posted Content
Risk Management: Coordinating Corporate Investment and Financing Policies
Kenneth A. Froot,Kenneth A. Froot,David S. Scharfstein,David S. Scharfstein,Jeremy C. Stein,Jeremy C. Stein +5 more
TL;DR: In this paper, the authors develop a general framework for analyzing corporate risk management policies and argue that if external sources of finance are more costly to corporations than internally generated funds, there will typically be a benefit to hedging: hedging adds value to the extent that it helps ensure that a corporation has sufficient internal funds available to take advantage of attractive investment opportunities.
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The Determinants and Implications of Corporate Cash Holdings
TL;DR: The authors examined the determinants and implications of holdings of cash and marketable securities by publicly traded U.S. firms in the 1971-1994 period and found that firms with strong growth opportunities and riskier cash flows hold relatively high ratios of cash to total assets.
Journal ArticleDOI
Risk Management: Coordinating Corporate Investment and Financing Policies
TL;DR: In this paper, a general framework for analyzing corporate risk management policies is developed, and the authors argue that if external sources of finance are more costly to corporations than internally generated funds, there will typically be a benefit to hedging: hedging adds value to the extent that it helps ensure that a corporation has sufficient internal funds available to take advantage of attractive investment opportunities.
Journal ArticleDOI
Managerial incentives and risk-taking ☆
TL;DR: This paper found that higher sensitivity of CEO wealth to stock volatility (vega) implements riskier policy choices, including relatively more investment in R&D, less investment in PPE, more focus, and higher leverage.
References
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Journal Article
The Cost of Capital, Corporation Finance and the Theory of Investment
TL;DR: In this article, the effect of financial structure on market valuations has been investigated and a theory of investment of the firm under conditions of uncertainty has been developed for the cost-of-capital problem.
Journal ArticleDOI
Financial Intermediation and Delegated Monitoring
TL;DR: In this paper, the authors developed a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders, and presented a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary.
Journal ArticleDOI
Rules Rather than Discretion: The Inconsistency of Optimal Plans
TL;DR: In this paper, it was shown that discretionary policy does not result in the social objective function being maximized, and that there is no way control theory can be made applicable to economic planning when expectations are rational.
Journal Article
Uncertainty and the Welfare Economics of Medical Care
TL;DR: In this article, the authors focus on the way in which the operation of the medical-care industry and the efficacy with which it satisfies the needs of society differ from a norm, and the most obvious distinguishing characteristics of an individual's demand for medical services is that it is not steady in origin as, for example, for food or clothing but is irregular and unpredictable.
Posted Content
Optimal Capital Structure Under Corporate and Personal Taxation
TL;DR: In this paper, a model of corporate leverage choice is formulated in which corporate and differential personal taxes exist and supply side adjustments by firms enter into the determination of equilibrium prices of debt and equity.