Hedging and Competition

Erasmo Giambona (), Anil Kumar and Gordon Phillips

No 29207, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study how risk management through hedging impacts firms and competition among firms in the life insurance industry - an industry with over 7 Trillion in assets and over 1,000 private and public firms. We show that firms that are likely to face costly external finance increase hedging after staggered state-level financial reform that reduces the costs of hedging. Post reform impacted firms have lower risk and fewer negative income shocks. Product market competition is also impacted. Firms that previously are more likely to face costly external finance, lower price, increase policy sales and increase their market share post reform. The results are consistent with hedging allowing firms that face potential costly financial distress to decrease risk and become more competitive.

JEL-codes: D0 D22 D43 G22 G28 G31 G32 G33 (search for similar items in EconPapers)
Date: 2021-09
New Economics Papers: this item is included in nep-com, nep-ias, nep-isf and nep-rmg
Note: CF IO
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