Financing policy, basis risk, and corporate hedging: Evidence from oil and gas producers

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Abstract

This paper studies the hedging policies of oil and gas producers between 1992 and 1994. My evidence shows that the extent of hedging is related to financing costs. In particular, companies with greater financial leverage manage price risks more extensively. My evidence also shows that the likelihood of hedging is related to economies of scale in hedging costs and to the basis risk associated with hedging instruments. Larger companies and companies whose production is located primarily in regions where prices have a high correlation with the prices on which exchange-traded derivatives are based are more likely to manage risks.

Original languageEnglish (US)
Pages (from-to)107-152
Number of pages46
JournalJournal of Finance
Volume55
Issue number1
DOIs
StatePublished - Feb 2000

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

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