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Corporate Incentives for Hedging and Hedge Accounting
Open accessAbstract
This article explores the information effect of financial risk management. Financial hedging improves the informativeness of corporate earnings as a signal of management ability and project quality by eliminating extraneous noise. Managerial and shareholder incentives regarding information transmission may differ, however, leading to conflicts regarding an optimal hedging policy. We show that these incentives depend on the accounting information made available by the firm. Under some circumstances, if hedge transactions are not disclosed (i.e., firms report only aggregate earnings), managers hedge to achieve greater risk reduction than they would if full disclosure were required. In these cases, it is optimal for shareholders to request only aggregate accounting reports.
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Cited by
Corporate risk management and dividend signaling theory
Dionne, G., & Ouederni, K. (2011) · Finance Research Letters · doi:10.1016/j.frl.2011.05.002 · Cited by 44
Metadata
- Authors
- DeMarzo, P. M., & Duffie, D.
- Venue
- Review of Financial Studies
- Publisher
- Oxford University Press (OUP)
- Published
- 1995-07
- Volume
- 8
- Issue
- 3
- Pages
- 743-771
- ISSN
- 0893-9454 (ISSN-L)
- 1465-7368
- OpenAlex
- W1969188796
- Cited by
- 762
- References
- 0
- FWCI
- 43.65
- Type
- journal article
- Language
- en
- Open access
- green
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- DeMarzo, P. M., & Duffie, D. (1995). Corporate Incentives for Hedging and Hedge Accounting. Review of Financial Studies. https://doi.org/10.1093/rfs/8.3.743
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Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
