Ravid_66017E-32A paper by Dr. S. Abraham Ravid, professor of finance at the Sy Syms School of Business, has just been accepted at the Journal of Economics and Management Strategy, edited at Harvard University, and will be published in a forthcoming issue. In “Input Hedging, Output Hedging, and Market Power,” Ravid and co-author David De Angelis of Rice University argue that firms that hedge outputs (for example, gold-mining firms hedging gold) and have a significant market share have incentives to over-produce and distort market prices. Therefore, they will find hedging expensive and will hedge less, as compared to firms that hedge inputs, for example, airlines hedging fuels. Empirical work on Standard & Poor’s 500 companies from 2001 to 2005 shows that firms with substantial power in the marketplace are less likely to hedge output risks. The paper also shows that some seemingly conflicting results in prior studies can be reconciled when one considers whether the firms in question hedged outputs or inputs.

Ravid also published an article in the prestigious Journal of Financial and Quantitative Analysis with Sy Syms School of Business colleague Assistant Professor of Finance Gabriela Coiculescu, Ronald Sverdlove of New Jersey Institute of Technology and Arturo Bris of IMD Business School. Titled “Conflicts in Bankruptcy and the Sequence of Debt Issues,” the article discusses optimizing the order of debt issues from firms. The paper shows theoretically and empirically, that some firms are better off issuing only senior debt, surprisingly some firms are better off issuing only junior debt, and some firms should (and do) alternate between senior and junior debt.

 

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