Risk management with supply contracts

Heitor Almeida, Kristine Watson Hankins, Ryan Williams

Research output: Contribution to journalArticlepeer-review

10 Scopus citations

Abstract

Purchase obligations are forward contracts with suppliers and are used more broadly than traded commodity derivatives. This paper is the first to document that these contracts are a risk management tool and have a material impact on corporate hedging activity. Firms that expand their risk management options following the introduction of steel futures contracts substitute financial hedging for purchase obligations. Contracting frictions, such as bargaining power and settlement risk, as well as potential hold-up issues associated with relationship-specific investment, affect the use of purchase obligations in the cross-section, as well as how firms respond to the introduction of steel futures. (JEL G30, G32, L14)

Original languageEnglish (US)
Pages (from-to)4179-4215
Number of pages37
JournalReview of Financial Studies
Volume30
Issue number12
DOIs
StatePublished - Dec 1 2017

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Fingerprint Dive into the research topics of 'Risk management with supply contracts'. Together they form a unique fingerprint.

Cite this