This paper investigates how firms manage risk by examining the relationship between financial and operational hedging using a sample of bank holding companies. Risk management theory holds that capital market imperfections make cash flow volatility costly. I investigate whether financial firms...

We show that merger activity and particularly waves are significantly driven by risk management considerations. Increases in cash flow uncertainty encourage firms to vertically integrate and this contributes to the start of merger waves. These effects are incremental to previously identified...

What has driven the dramatic rise in U.S. corporate cash? Using non-public data, we show that the run-up is not uniform across firms but is concentrated in the foreign subsidiaries of multinational firms. Standard precautionary motives explain only domestic cash holdings, not these burgeoning...

Captive finance subsidiaries, vertically integrated lenders, create a potential channel for trade policy to affect consumer credit. Examining the Trump administration 2018 metal tariffs’ impact on auto manufacturers, we find consumers received worse auto loan terms from captive lenders after...

Informed risk management can reduce firm risk to tolerable levels, allowing companies to thrive. The consequences are new jobs, new products, and long-lasting benefits to society. However, the academic evidence on the importance of risk management is frequently described as ‘mixed’ (MacKay...

Both risk management and payout decisions affect a firm's financial flexibility — the ability to avoid costly financial distress as well as underinvestment. We provide evidence of substitution between hedging and payout decisions using samples of both financial and nonfinancial firms. We find...

Dynamic panel models play a natural role in several important areas of corporate finance, but the combination of fixed effects and lagged dependent variables introduces serious econometric bias. Several methods of counteracting these biases are available and these methodologies have been tested...