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Real Consequences of Shocks to Intermediaries Supplying Corporate Hedging Instruments

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  • Hyeyoon Jung

Abstract

I show that shocks to financial intermediaries supplying hedging instruments to corporations have real effects. I exploit a quasi-natural experiment in South Korea in 2010, where regulations required banks to hold enough capital for taking foreign exchange derivatives (FXD) positions. Using variation in exposure to this regulation across banks, I find that the regulation caused a reduction in FXD supply, leading to a significant decline in exports for firms contracting derivatives with more exposed banks. Results indicate the crucial role of intermediaries in allocating risks through derivatives provision and establish a causal relationship between financial hedging and real economic outcomes.

Suggested Citation

  • Hyeyoon Jung, 2025. "Real Consequences of Shocks to Intermediaries Supplying Corporate Hedging Instruments," The Review of Financial Studies, Society for Financial Studies, vol. 38(1), pages 39-113.
  • Handle: RePEc:oup:rfinst:v:38:y:2025:i:1:p:39-113.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhae066
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    Keywords

    E44; F31; G15; G28; G32;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • 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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