Investment, Cash Flow, and Corporate Hedging

Posted: 22 Oct 2014

See all articles by Sanjay Deshmukh

Sanjay Deshmukh

DePaul University - Department of Finance

Stephen Vogt

Mesirow Financial Investment Management

Date Written: 2005

Abstract

We examine the underinvestment rationale for corporate hedging and test the hypothesis that if firms hedge to reduce both their reliance on external funds and the volatility of internal cash flow, then their investment spending should be less sensitive to prehedged cash flow. Our results are consistent with this hypothesis and indicate that investment spending is less sensitive to cash flow for hedgers than for nonhedgers. We also find that among hedgers, investment spending is less sensitive to cash flow when the extent of hedging is higher. Our results are generally robust to five different measures of cash flow.

Suggested Citation

Deshmukh, Sanjay and Vogt, Stephen, Investment, Cash Flow, and Corporate Hedging (2005). Journal of Corporate Finance, Vol. 11, No. 4, 2005, Available at SSRN: https://ssrn.com/abstract=2512875

Sanjay Deshmukh (Contact Author)

DePaul University - Department of Finance ( email )

1 East Jackson Blvd.
Chicago, IL 60604-2287
United States
312-362-8472 (Phone)
312-362-6566 (Fax)

Stephen Vogt

Mesirow Financial Investment Management ( email )

350 N. Clark
Chicago, IL 60610
United States

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