Financial Leverage,CEO Compensation,and Corporate Hedging: Evidence from Real Estate Investment Trusts

This paper studies the determinants of corporate hedging practices in the REIT industry between 1999 and 2001. We find a positive significant relation between hedging and financial leverage, indicating the financial distress costs motive for using derivatives in the REIT industry. Using estimates of the Black–Scholes sensitivity of CEO’s stock option portfolios to stock return volatility and the sensitivity of CEO’s stock and stock option portfolios to stock price, we find evidence to support managerial risk aversion motive for corporate hedging in the REIT industry. Our results indicate that CEO’s cash compensation and the CEO’s wealth sensitivity to stock return volatility are significant determinants of derivative use in REITs. We also document a significant positive relation between institutional ownership and hedging activity. Further, we find that probability of hedging is related to economies of scale in hedging costs.

Corporate Risk Management for Multinational Corporations: Financial and Operational Hedging Policies

Under what conditions will a multinational corporation alterits operations to manage its risk exposure? We show that multinationalfirms will engage in operational hedging only when both exchangerate uncertainty and demand uncertainty are present. Operationalhedging is less important for managing short-term exposures,since demand uncertainty is lower in the short term. Operationalhedging is also less important for commodity-based firms, whichface price but not quantity uncertainty. When the fixed costsof establishing a plant are low or the variability of the exchangerate is high, a firm may benefit from establishing plants inboth the domestic and foreign location. Capacity allocated tothe foreign location relative to the domestic location willincrease when the variability of foreign demand increases relativeto the variability of domestic demand or when the expected profitmargin is larger. For firms with plants in both a domestic andforeign location, the foreign currency cash flow generally willnot be independent of the exchange rate and consequently theoptimal financial hedging policy cannot be implemented withforward contracts alone. We show that the optimal financialhedging policy can be implemented using foreign currency calland put options and forward contracts.     

Hedging Corporate Bonds

We examine Treasury bond and stock index futures, the swap curve and two types of hypothetical corporate bond assets as alternative hedging instruments for portfolios of corporate bonds. Conducting ex post and ex ante tests we find evidence that credit quality and maturity are important sources of basis risk when hedging corporate bonds whose credit rating are below triple A. We conclude that a new corporate hedging instrument may be useful for those wishing to hedge corporate bond portfolios provided that transaction costs are not too high relative to existing futures contracts.     

Managerial Ownership and Corporate Hedging

Abstract:  Using information on 443 UK non-financial companies, this work provides evidence supporting the hypothesis that managerial risk aversion is an incentive to deviate from the optimal hedging position. Conflicts of interest between shareholders and managers are at the centre of the decision about the firm's risk profile but are not relevant as determinants of the decision to hedge. This is rather associated with factors enhancing the firm's expected value (underinvestment, scale economies, tax savings).     

Corporate Real Estate Ownership Implications: International Performance Evidence

In this paper we explore corporate real estate ownership internationally. Based on a sample of 4,636 companies from 18 industries and 9 countries we document distinct patterns and trends in the corporate ownership level of real estate. Real estate ownership appears to be driven by industrial rather than national differences, with corporate real estate ratios ranging between 0.13 for Business Services and 0.63 for the Mining sector. Overall, real estate ownership appears to be decreasing over time, which may be due to the gaining popularity of lease alternatives. When analyzing the stock performance of the companies in our sample, we discover a significantly negative relationship between real estate ownership and a firms systematic risk. Idiosyncratic risk bears no significant relationship with real estate ownership. With respect to stock returns our results show that returns are lowest among firms with the highest real estate ownership levels in each industry. After controlling for the variation in risks, the remaining return patterns differ strongly across industries, with a significantly negative relationship between stock outperformance and real estate ownership for Communications and Business Services and a positive but not significant relationship for Transportation.     

Financial Strength and Product Market Behavior: The Real Effects of Corporate Cash Holdings

This paper shows that large cash reserves lead to systematic future market share gains at the expense of industry rivals. Using shifts in import tariffs to identify exogenous intensification of competition, difference‐in‐difference estimations support the causal impact of cash on product market performance. Moreover, the analysis reveals that the “competitive” effect of cash is markedly distinct from the strategic effect of debt on product market outcomes. This effect is stronger when rivals face tighter financing constraints and when the number of interactions between competitors is large. Overall, the results suggest that cash policy encompasses a substantial strategic dimension.     

Corporate Hedging Policy and Equity Mispricing

We show that firms’ use of derivatives is negatively associated with stock mispricing. This result is consistent with the notion that hedging improves the transparency and predictability of firms’ cash flows resulting in less misvaluation. Furthermore, we show that the negative relationship between mispricing and hedging is particularly strong when market value is below fundamental value, which is consistent with prior evidence that hedging has a positive impact on firm valuation. Finally, we provide evidence that a “spread‐out” hedging policy that entails the use of a variety of derivative contracts can be more effective in reducing mispricing.     

Financial Crisis and Corporate Liquidity: Implications for Emerging Markets

The present study investigates corporate liquidity (cash holdings) in emerging markets from 1990 to 2006. During the Asian financial crisis, firms in the majority of emerging markets examined in the present study held more cash. In addition, such an increase in cash holdings was the result of the strengthened propensity of firms to retain cash from earnings. The firms also hoarded cash to take advantage of greater growth opportunities and to meet higher investment demands after the crisis. Furthermore, the results indicated that cash added to firm value. The end of the crisis guaranteed the value-enhancing effect of cash for the majority of the economies in the current study.     

On the Determinants of Corporate Hedging

Finance theory indicates that hedging increases firm value by reducing expected taxes, expected costs of financial distress, or other agency costs. This paper provides evidence on these hypotheses using survey data on firm's use of forwards, futures, swaps, and options combined with COMPUTSTAT data on firm characteristics. Of 169 firms in the sample, 104 firms use hedging instruments in 1986. The data suggest that firms which hedge face more convex tax functions, have less coverage of fixed claims, are larger, have more growth options in their investment opportunity set, and employ fewer hedging substitutes.     

Corporate Hedging: The Relevance of Contract Specifications and Banking Relationships

This article examines the contribution of hedging to firm value and the cost of hedging in a unified framework. Optimal hedging and firm value are explicitly linked to firm risk, the type of debt covenants and the relative priority of the hedging contract. It is shown that in some cases hedging is possible only if the counterparty to the forward contract also holds a significant portion of the debt. Also, the spread in the hedging contract reduces the optimal amount of hedging to less than the minimum-variance hedge ratio. Among other results this article elucidates why some firms hedge using forward contracts while other firms hedge in the futures markets, as well as why higher priority forward contracts are more efficient hedging vehicles.     

全球金融市场法人识别码系统的构建及其对中国的启示

2008年9月爆发的全球金融危机昭示了以美国为代表的主要发达经济体的金融监管体制存在重大缺陷。为此,各国纷纷大刀阔斧地改革本国的金融监管体制,而全面强化宏观审慎监管以防范系统性金融风险的爆发与蔓延则成为后危机时代全球金融监管改革的主旋律。在此背景下,美国于2010年底率先提出了为金融市场构建法人识别码（Legal Entity Identifier）系统的这一方案。2011年以来,在美国的积极倡导下,构建全球金融市场法人识别码系统的方案日渐成熟;2012年6月,＂二十国集团＂洛斯卡沃斯峰会不仅正式批准了由金融稳定理事会（Financial Stability Board）提交的构建全球金融市场法人识别码系统的草案,而且还提出力争在2013年3月基本完成该系统的筹建这一目标。构建全球金融市场法人识别码系统是后危机时代加强全球金融监管合作以及推动国际金融监管框架改革的重大举措,其必将对全球各国的金融监管体制改革产生重大而深远的影响。     

Corporate Hedging: The Relevance of Contract Specifications and Banking Relationships

This article examines the contribution of hedging to firm valueand the cost of hedging in a unified framework. Optimal hedgingand firm value are explicitly linked to firm risk, the typeof debt covenants and the relative priority of the hedging contract.It is shown that in some cases hedging is possible only if thecounterparty to the forward contract also holds a significantportion of the debt. Also, the spread in the hedging contractreduces the optimal amount of hedging to less than the minimum-variancehedge ratio. Among other results this article elucidates whysome firms hedge using forward contracts while other firms hedgein the futures markets, as well as why higher priority forwardcontracts are more efficient hedging vehicles. JEL Classificationnumbers: G13, G22 and G33.     

Corporate Hedging in the Insurance Industry

Abstract

In this paper we investigate the extent to which insurance companies utilize financial derivatives contracts in the management of risks The data set we employ allows us to observe the universe of individual insurer transactions for a class of contracts, namely, those normally thought of as off-balance-sheet (OBS) We provide information on the number of insurers using various types of derivatives contracts and the volume of transactions in terms of notional amounts and the number of counterparties. Life insurers are most active in interest rate and foreign exchange derivatives, while property/casualty insurers tend to be active in trading equity option and foreign exchange contracts Using a multivariate probtt analysis, we explore the factors that potentially influence the existence of OBS activities. We also investigate questions relating to whether certain subsets of OBS transactions (for example, exchange traded) are related to such things as interest rate risk measures, organizational form and other characteristics that may discriminate between desired risk/return profiles across a cross-section of insurers. We find evidence consistent with the use of derivatives by insurers to hedge risks posed by guaranteed investment contracts (GICs), coilater-alized mortgage obligations (CMOs), and other sources of financial risk     

Some Issues in Corporate Hedging Policy

The increased volatility of financial markets in recent years has led to a corresponding increase in the volatility of corporate earnings. This has, in turn, led to a surge of interest in hedging. At first sight, it may seem that, to the extent it can reduce volatility, hedging is a worthwhile activity. However, we argue that the issue is less clear-cut than meets the eye. In the process of developing our arguments, we shall look at some of the financial instruments available for hedging and shall show how they can be used for various hedging and non-hedging purposes.     

The Volatility and Price Sensitivities of Managerial Stock Option Portfolios and Corporate Hedging

We use estimates of the Black–Scholes sensitivity of managers' stock option portfolios to stock return volatility and the sensitivity of managers' stock and stock option portfolios to stock price to test the relationship between managers' risk preferences and hedging activities. We find that as the sensitivity of managers' stock and stock option portfolios to stock price increases, firms tend to hedge more. However, as the sensitivity of managers' stock option portfolios to stock return volatility increases, firms tend to hedge less.     

公司金融业务与个人金融业务捆绑销售研究

在商业银行同质化竞争进一步加剧,社会金融需求日益多元化的外部环境下,推行公司金融业务与个人金融业务捆绑销售是商业银行适应市场发展,提高营销效果,增强竞争能力的现实要求和必然趋势.以中国工商银行江西省分行为例,捆绑销售作为一种新的营销模式,尽管目前具备了一定的现实基础,也作了一些初步尝试,但要进一步完善和发展,需要从营销理念、运行平台、作业流程及保障机制等方面综合着力,以充分发挥工商银行综合资源优势,凝聚两大主体业务市场联动营销合力,全面打造核心竞争力,带动并促进各项业务规范、高效地发展.     

The Stochastic Behavior of Commodity Prices: Implications for Valuation and Hedging

In this article we compare three models of the stochastic behavior of commodity prices that take into account mean reversion, in terms of their ability to price existing futures contracts, and their implication with respect to the valuation of other financial and real assets. The first model is a simple one-factor model in which the logarithm of the spot price of the commodity is assumed to follow a mean reverting process. The second model takes into account a second stochastic factor, the convenience yield of the commodity, which is assumed to follow a mean reverting process. Finally, the third model also includes stochastic interest rates. The Kalman filter methodology is used to estimate the parameters of the three models for two commercial commodities, copper and oil, and one precious metal, gold. The analysis reveals strong mean reversion in the commercial commodity prices. Using the estimated parameters, we analyze the implications of the models for the term structure of futures prices and volatilities beyond the observed contracts, and for hedging contracts for future delivery. Finally, we analyze the implications of the models for capital budgeting decisions.     

套期会计在衍生品核算中的作用和启示

本文介绍了被套期产品外延和内涵,判断被套期产品和套期工具相关性的标准,规范了三种类型的套期,计有公允价值套期、现金流量套期和对境外企业净投资的套期,提出了套期会计核算的三条原则和二个重要概念即套期有效性和套期文件,同时列举了目前衍生产品核算的实例,根据套期会计的规定重新作了分类判断和会计处理,指出了异同之处。国际会计准则39号体现了配比原则,可以规避非管理性的损益波动,特别是能帮助上市公司在公允性的前提下保持稳定上升的每股收益。同时它对会计人员的专业判断能力,金融企业的产品创新和电子化应用等各方面提出了挑战。     

金融危机与对冲基金新趋势

本轮危机之前的对冲基金利用良好的表现遮盖了其高杠杆和其它一些结构性等问题。危机之中,正是对冲基金的去杠杆化使风险放大,引发了全球金融风暴。危机过后的基金,痛定思痛,正通过改变策略,走出困境。重点对对冲基金的最新变化趋势进行了分析。