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Derivatives use and the value of cash holdings: Evidence from the U.S. oil and gas industry

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  • Sanghak Choi
  • Hyeonung Jang
  • Daejin Kim
  • Byoung Ki Seo

Abstract

We examine the effect of the oil and gas firms' use of derivatives for hedging risks on the marginal value of cash holdings. Analyzing 155 U.S. oil and gas producers from 1998 to 2017, we find that the use of derivatives for hedging risks, especially oil and gas‐related risk, reduces the marginal value of corporate cash holdings. Furthermore, the effect of using derivatives is stronger for firms exposed to higher risk. Our findings imply that cash holdings and derivatives use act as substitutes in hedging risk in this industry.

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  • Sanghak Choi & Hyeonung Jang & Daejin Kim & Byoung Ki Seo, 2021. "Derivatives use and the value of cash holdings: Evidence from the U.S. oil and gas industry," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(3), pages 361-383, March.
    • Handle: RePEc:wly:jfutmk:v:41:y:2021:i:3:p:361-383
    DOI: 10.1002/fut.22173
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    1. Giraldo, Carlos & Giraldo, Iader & Huertas, Cristian & Sánchez, Juan Camilo, 2024. "Determinants of Financial Hedging Strategies among Commodity Producer Firms in Latin America," Documentos de trabajo 21196, FLAR.

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