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Hedging and investment trade-offs in the U.S. oil industry

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  • Ferriani, Fabrizio
  • Veronese, Giovanni

Abstract

Using more than a decade of firm-level data on U.S. crude oil producers’ hedging portfolios, we document for the first time a strong positive link between a firms’ net worth and hedging. When subject to collateral constraints, firms face a trade-off between hedging and investment financing as both activities absorb collateral. Pledgeable collateral also impinges the extensive margin of risk management and we find a more limited use of linear derivative contracts when firms’ net worth increases.

Suggested Citation

  • Ferriani, Fabrizio & Veronese, Giovanni, 2022. "Hedging and investment trade-offs in the U.S. oil industry," Energy Economics, Elsevier, vol. 106(C).
    • Handle: RePEc:eee:eneeco:v:106:y:2022:i:c:s0140988321005843
    DOI: 10.1016/j.eneco.2021.105736
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    2. Dionne, Georges & El Hraiki, Rayane & Mnasri, Mohamed, 2023. "Determinants and real effects of joint hedging: An empirical analysis of US oil and gas producers," Energy Economics, Elsevier, vol. 124(C).

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    More about this item

    Keywords

    Dynamic risk management; Hedging; Net worth; Oil price collapse; Investment;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G00 - Financial Economics - - General - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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