Financial constraints, competition and hedging in industry equilibrium

Dasgupta, Sudipto (2007) Financial constraints, competition and hedging in industry equilibrium. Journal of Finance, 62 (5). pp. 2445-2473. ISSN 0022-1082

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We analyze the hedging decisions of firms, within an equilibrium setting that allows us to examine how a firm's hedging choice depends on the hedging choices of its competitors. Within this equilibrium some firms hedge while others do not, even though all firms are ex ante identical. The fraction of firms that hedge depends on industry characteristics, such as the number of firms in the industry, the elasticity of demand, and the convexity of production costs. Consistent with prior empirical findings, the model predicts that there is more heterogeneity in the decision to hedge in the most competitive industries.

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Journal Article
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Journal of Finance
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08 Jul 2015 12:34
Last Modified:
22 Nov 2022 01:57