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On-balance-sheet duration hedging and firm value

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  • Dai, Ya
  • Guo, Liang
  • Zhang, Hongxian
  • Liu, Yu

Abstract

In this study we consider the determinants and effects of on-balance-sheet duration hedging for non-financial US firms. The difference between the duration of assets and liabilities, or duration gap, is negatively related to growth opportunities, and positively related to profitability, corporate cash holdings, and managerial ownership. We find that both a lower duration gap and a lower absolute value of duration gap are associated with higher firm values. Moreover, we find some evidence that firms with larger duration gaps performed worse during the market-wide liquidity shock accompanying the Lehman Brothers bankruptcy.

Suggested Citation

  • Dai, Ya & Guo, Liang & Zhang, Hongxian & Liu, Yu, 2020. "On-balance-sheet duration hedging and firm value," International Review of Financial Analysis, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:finana:v:71:y:2020:i:c:s1057521920301617
    DOI: 10.1016/j.irfa.2020.101517
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    More about this item

    Keywords

    Duration gap; Valuation; Liquidity;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - 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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