Corporate resiliency and the choice between financial and operational hedging

Viral Acharya, Heitor Almeida, Yakov Amihud and Ping Liu

No 15885, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We investigate how firms manage financial default risk (on debt) and operational default risk (on delivery obligations). Financially constrained firms reduce operational hedging through inventory and supply chain in favor of cash holdings. Our model predicts that firms’ markup increases with financial default risk as they cut operational hedging costs. Empirical analysis confirms this prediction and shows that the markupcredit risk relationship strengthens during adverse aggregate shocks, particularly for firms exposed to lending disruptions. Market power alone cannot explain this relationship, which reflects firms’ strategic adjustments in operational hedging practices.

Keywords: Financial default; Operational default; Resilience; Liquidity; Financial constraints; Risk management (search for similar items in EconPapers)
JEL-codes: G31 G32 G33 (search for similar items in EconPapers)
Date: 2021-03
New Economics Papers: this item is included in nep-cfn and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://cepr.org/publications/DP15885 (application/pdf)

Related works:
Working Paper: Corporate Resiliency and the Choice Between Financial and Operational Hedging (2025)
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:cpr:ceprdp:15885

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP15885

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().