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Maturity, Speculation and Corporate Hedging: An Empirical Study in Oil and Gas Firms from 2000-2008

Lin, Xinyun LU and Cong, Xitong LU (2017) BUSN79 20171
Department of Business Administration
Abstract
In this paper, we develop a new but also under-researched measure for firms’ hedging practice: maturity. Comparison between the outputs of two sets of Tobit model using hedge ratio and maturity respectively shows that the costs of financial distress hypothesis and the financing costs hypothesis are partially supported by both hedge ratio and maturity. Besides, the economies of scale hypothesis receives supportive evidence when using maturity as the measure. Heckman two-step estimation suggests that the significant factors found in Tobit model are only significant determinants in the decision to hedge, while not in the extent of hedging. An independent variable accounting for firms' selective hedging behaviour is incorporated which is also... (More)
In this paper, we develop a new but also under-researched measure for firms’ hedging practice: maturity. Comparison between the outputs of two sets of Tobit model using hedge ratio and maturity respectively shows that the costs of financial distress hypothesis and the financing costs hypothesis are partially supported by both hedge ratio and maturity. Besides, the economies of scale hypothesis receives supportive evidence when using maturity as the measure. Heckman two-step estimation suggests that the significant factors found in Tobit model are only significant determinants in the decision to hedge, while not in the extent of hedging. An independent variable accounting for firms' selective hedging behaviour is incorporated which is also found to be positively related to maturity in both Tobit model and Heckman two-step estimation. This finding is attributed to managers’ overconfidence and optimism biases. In addition, robustness tests corroborate our findings. Hence, maturity effectively supplements hedge ratio when evaluating a firm's hedging practice. (Less)
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author
Lin, Xinyun LU and Cong, Xitong LU
supervisor
organization
course
BUSN79 20171
year
type
H1 - Master's Degree (One Year)
subject
keywords
Maturity, Hedging, Speculation, Hedging determinants, Derivative usage
language
English
id
8916658
date added to LUP
2017-07-05 16:38:27
date last changed
2017-07-05 16:38:27
@misc{8916658,
  abstract     = {In this paper, we develop a new but also under-researched measure for firms’ hedging practice: maturity. Comparison between the outputs of two sets of Tobit model using hedge ratio and maturity respectively shows that the costs of financial distress hypothesis and the financing costs hypothesis are partially supported by both hedge ratio and maturity. Besides, the economies of scale hypothesis receives supportive evidence when using maturity as the measure. Heckman two-step estimation suggests that the significant factors found in Tobit model are only significant determinants in the decision to hedge, while not in the extent of hedging. An independent variable accounting for firms' selective hedging behaviour is incorporated which is also found to be positively related to maturity in both Tobit model and Heckman two-step estimation. This finding is attributed to managers’ overconfidence and optimism biases. In addition, robustness tests corroborate our findings. Hence, maturity effectively supplements hedge ratio when evaluating a firm's hedging practice.},
  author       = {Lin, Xinyun and Cong, Xitong},
  keyword      = {Maturity,Hedging,Speculation,Hedging determinants,Derivative usage},
  language     = {eng},
  note         = {Student Paper},
  title        = {Maturity, Speculation and Corporate Hedging: An Empirical Study in Oil and Gas Firms from 2000-2008},
  year         = {2017},
}