Effect of Corporate Risk Management on Dividend Policy: Evidence from US Oil and Gas Firms

Karima Ouederni and Georges Dionne ()
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Karima Ouederni: HEC Montréal

No 26-01, Papers from Risk Management Research Platform

Abstract: This paper tests the real effect of corporate risk management on dividend policy within a signaling theory framework. We suggest that these policies are complementary and should therefore be positively related. Actual empirical results diverge regarding the sign and significance of this relationship. One potential explanation for this mixed evidence is reverse causality. We extend the theoretical framework of Bhattacharya (1979) by allowing firms to hedge future cash flows. The theoretical results suggest that dividend policy and corporate hedging are positively related. Using an instrumental variable approach, we show that corporate hedging emerges as a positive and significant determinant of dividend policy. Joint dividend and risk management decisions increase firm value.

Keywords: Corporate risk management; dividend policy; firm value; signaling theory; information asymmetry; hedging; oil and gas industry; instrumental variable (search for similar items in EconPapers)
JEL-codes: C25 C26 D81 G32 G35 Q43 (search for similar items in EconPapers)
Pages: 50
Date: 2026-05-16
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Persistent link: https://EconPapers.repec.org/RePEc:ris:riskmr:023858

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