Corporate Risk Management, Product Market Competition, and Disclosure

44 Pages Posted: 3 Aug 2016 Last revised: 2 Nov 2017

See all articles by Daniel Hoang

Daniel Hoang

University of Hohenheim

Martin E. Ruckes

Karlsruhe Institute of Technology

Date Written: July 1, 2016

Abstract

This paper studies the effects of hedge disclosure requirements on corporate risk management and product market competition. The analysis is based on a model of market entry and shows that to prevent entry incumbent firms engage in risk management when these activities remain unobserved by outsiders. In the resulting equilibrium, financial markets are well informed and entry is efficient. However, potential attempts for more transparency by additional disclosure requirements introduce a commitment device that provides incumbents with incentives to distort risk management activities thereby influencing entrant beliefs. In equilibrium, firms engage in significant risk-taking. This behavior limits entry and adversely affects the nature of competition in industries.

Keywords: Risk Management, Hedge Disclosures, Transparency, Market Entry, Signal Jamming

JEL Classification: D82, G30, G32, L1, M4

Suggested Citation

Hoang, Daniel and Ruckes, Martin E., Corporate Risk Management, Product Market Competition, and Disclosure (July 1, 2016). Journal of Financial Intermediation 30, 107-121, April 2017, Available at SSRN: https://ssrn.com/abstract=2817232

Daniel Hoang (Contact Author)

University of Hohenheim

Fruwirthstr. 49
Stuttgart, 70599
Germany

Martin E. Ruckes

Karlsruhe Institute of Technology ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131
Germany

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