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Real implications of corporate risk management: Evidence from U.S. oil producers

Georges Dionne and Mohamed Mnasri ()
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Mohamed Mnasri: HEC Montreal, Canada Research Chair in Risk Management

No 18-5, Working Papers from HEC Montreal, Canada Research Chair in Risk Management

Abstract: This study revisits the question of whether risk management has real implications on firm value, risk, and accounting performance using a new dataset on the hedging activities of U.S. oil producers. In light of the controversial results in the literature, this paper estimates the hedging premium question for firms using a more robust econometric methodology, namely essential heterogeneity models, that controls for bias related to selection on unobservables and self‒selection in the estimation of marginal treatment effects (MTE). We find that oil producers with higher propensity scores for the use of more extensive hedging activities tend to have higher marginal firm value and higher marginal risk reduction, and realize stronger marginal accounting performance. They also have significant average treatment effects (ATE) for firm financial value, idiosyncratic risk and systematic risk.

Keywords: Corporate risk management; real implications; value creation; risk reduction; hedging benefits; oil producers; marginal treatment effect; average treatment effect; essential heterogeneity model (search for similar items in EconPapers)
JEL-codes: D80 G32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-rmg
Date: 2018-06-20
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