The influence of product market dynamics on a firm's cash holdings and hedging behavior

George David Haushalter, Sandy Klasa, William F. Maxwell

Research output: Contribution to journalArticle

113 Citations (Scopus)

Abstract

Prior work suggests that if a firm shares a larger proportion of its growth opportunities with rivals, an inability to fully invest in these opportunities leads to predatory behavior on the part of rivals and losses in market share. We examine whether firms manage this predation risk. We find inter- and intra-industry evidence that the extent of the interdependence of a firm's investment opportunities with rivals is positively associated with its use of derivatives and the size of its cash holdings. Moreover, an analysis of investment behavior provides evidence that if this interdependence is high, the management of predation risk provides strategic benefits. Our results indicate that predation risk is an important determinant of corporate financial policy choices and investment behavior.

Original languageEnglish (US)
Pages (from-to)797-825
Number of pages29
JournalJournal of Financial Economics
Volume84
Issue number3
DOIs
StatePublished - Jun 1 2007

Fingerprint

Predation
Product market
Cash holdings
Hedging
Market dynamics
Investment behavior
Interdependence
Industry
Growth opportunities
Investment opportunities
Strategic risk
Firm investment
Market share
Financial policy
Choice behavior
Derivatives
Proportion
Policy choice

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

Cite this

@article{edee6f2bddef438e89baa02c11132458,
title = "The influence of product market dynamics on a firm's cash holdings and hedging behavior",
abstract = "Prior work suggests that if a firm shares a larger proportion of its growth opportunities with rivals, an inability to fully invest in these opportunities leads to predatory behavior on the part of rivals and losses in market share. We examine whether firms manage this predation risk. We find inter- and intra-industry evidence that the extent of the interdependence of a firm's investment opportunities with rivals is positively associated with its use of derivatives and the size of its cash holdings. Moreover, an analysis of investment behavior provides evidence that if this interdependence is high, the management of predation risk provides strategic benefits. Our results indicate that predation risk is an important determinant of corporate financial policy choices and investment behavior.",
author = "Haushalter, {George David} and Sandy Klasa and Maxwell, {William F.}",
year = "2007",
month = "6",
day = "1",
doi = "10.1016/j.jfineco.2006.05.007",
language = "English (US)",
volume = "84",
pages = "797--825",
journal = "Journal of Financial Economics",
issn = "0304-405X",
publisher = "Elsevier",
number = "3",

}

The influence of product market dynamics on a firm's cash holdings and hedging behavior. / Haushalter, George David; Klasa, Sandy; Maxwell, William F.

In: Journal of Financial Economics, Vol. 84, No. 3, 01.06.2007, p. 797-825.

Research output: Contribution to journalArticle

TY - JOUR

T1 - The influence of product market dynamics on a firm's cash holdings and hedging behavior

AU - Haushalter, George David

AU - Klasa, Sandy

AU - Maxwell, William F.

PY - 2007/6/1

Y1 - 2007/6/1

N2 - Prior work suggests that if a firm shares a larger proportion of its growth opportunities with rivals, an inability to fully invest in these opportunities leads to predatory behavior on the part of rivals and losses in market share. We examine whether firms manage this predation risk. We find inter- and intra-industry evidence that the extent of the interdependence of a firm's investment opportunities with rivals is positively associated with its use of derivatives and the size of its cash holdings. Moreover, an analysis of investment behavior provides evidence that if this interdependence is high, the management of predation risk provides strategic benefits. Our results indicate that predation risk is an important determinant of corporate financial policy choices and investment behavior.

AB - Prior work suggests that if a firm shares a larger proportion of its growth opportunities with rivals, an inability to fully invest in these opportunities leads to predatory behavior on the part of rivals and losses in market share. We examine whether firms manage this predation risk. We find inter- and intra-industry evidence that the extent of the interdependence of a firm's investment opportunities with rivals is positively associated with its use of derivatives and the size of its cash holdings. Moreover, an analysis of investment behavior provides evidence that if this interdependence is high, the management of predation risk provides strategic benefits. Our results indicate that predation risk is an important determinant of corporate financial policy choices and investment behavior.

UR - http://www.scopus.com/inward/record.url?scp=34247616049&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=34247616049&partnerID=8YFLogxK

U2 - 10.1016/j.jfineco.2006.05.007

DO - 10.1016/j.jfineco.2006.05.007

M3 - Article

AN - SCOPUS:34247616049

VL - 84

SP - 797

EP - 825

JO - Journal of Financial Economics

JF - Journal of Financial Economics

SN - 0304-405X

IS - 3

ER -