The Maturity Structure of Corporate Hedging: The Case of the U.S. Oil and Gas Industry
57 Pages Posted: 23 Oct 2013 Last revised: 18 Jan 2014
Date Written: January 15, 2014
Abstract
This paper investigates how firms design the maturity of their hedging programs, and the real effects of maturity choice on firm value and risk. Using a new dataset on hedging activities of 150 U.S. oil and gas producers, we find strong evidence that hedging maturity is influenced by investment programs, market conditions, production specificities, and hedging contract features. We also give empirical evidence of a non-monotonic relationship between hedging maturity and measures of financial distress. We further investigate the motivations of early termination of contracts. Finally, we show that longer hedging maturities could attenuate the impacts of commodity price risk on firm value and risk.
Keywords: Risk management, maturity choice, early termination, economic effects, oil and gas industry
JEL Classification: D8, G32
Suggested Citation: Suggested Citation
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