Financial Hedging, Corporate Cash Policy, and the Value of Cash

Sun, W.; Yin, C.; Zeng, Y.

doi:10.1111/1467-8551.12520

Financial Hedging, Corporate Cash Policy, and the Value of Cash

Sun, W.; Yin, C.; Zeng, Y.

Authors

W. Sun

C. Yin

Dr Yeqin Zeng yeqin.zeng@durham.ac.uk
Associate Professor

Abstract

We study the implications of financial hedging for corporate cash policy and the value of cash holdings. Using a web crawler program to collect data on the use of financial derivatives between 1993 and 2016, we find that US public firms with financial hedging programs have smaller cash reserves but a higher value of cash than firms without hedging contracts in place. Our empirical results are robust when controlling for potential endogeneity issues, corporate governance, cash regimes, and alternative measures of cash holdings. Further, we find that financial hedging not only increases the investment sensitivity to internal cash, but also has a positive effect on investment efficiency. The positive effect of financial hedging on the value of cash is more pronounced for firms with more financial constraints, higher information asymmetry, and weaker corporate governance. Collectively, our paper highlights the importance of corporate cash policy as a channel through which financial risk management increases firm value.

Citation

Sun, W., Yin, C., & Zeng, Y. (2022). Financial Hedging, Corporate Cash Policy, and the Value of Cash. British Journal of Management, 33(3), 1271-1303. https://doi.org/10.1111/1467-8551.12520

Journal Article Type	Article
Acceptance Date	Apr 27, 2021
Online Publication Date	Jun 11, 2021
Publication Date	Jul 5, 2022
Deposit Date	Apr 28, 2021
Publicly Available Date	Jul 23, 2021
Journal	British Journal of Management
Print ISSN	1045-3172
Electronic ISSN	1467-8551
Publisher	Wiley
Peer Reviewed	Peer Reviewed
Volume	33
Issue	3
Pages	1271-1303
DOI	https://doi.org/10.1111/1467-8551.12520
Public URL	https://durham-repository.worktribe.com/output/1276444

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Copyright Statement
Advance online version © 2021 The Authors. British Journal of Management published by John Wiley & Sons Ltd on behalf of British Academy of Management

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.