Capital expenditures, financial constraints, and the use of options

Tim Adam

Journal of Financial Economics, 2009, vol. 92, issue 2, 238-251

Abstract: This paper analyzes why gold mining firms use options instead of linear strategies to hedge their gold price risk. Consistent with financial constraints based theories, the largest and least financially constrained firms are the most likely to hedge with insurance strategies (put options), while more constrained firms finance the purchase of puts by selling calls (collars). The most financially constrained firms use strategies that involve selling calls. Firms with large investment programs are also more likely to use insurance rather than linear strategies. Firms' hedging instrument choices are also correlated with current market conditions, suggesting that managers' market views partially drive hedging instrument choices.

Keywords: Risk; management; Hedging; Insurance; Instrument; choice; Speculation (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (39)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304-405X(09)00004-X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:92:y:2009:i:2:p:238-251

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().