Corporate Finance: Risk Management
Sunday, Jan. 3, 2021 10:00 AM - 12:00 PM (EST)
- Chair: Jarrad Harford, University of Washington
Corporate Climate Risk: Measurements and Responses
AbstractThis paper constructs a novel measure of climate risk at the firm level by adopting a textual analysis method. The measure captures the share of conversations on earnings conference calls that center on climate- and weather-related keywords, allowing us not only to construct a total climate risk measure but also to obtain disaggregated climate risk measures, such as those related to long- versus short-run factors, as well as corporate functions affected by climate risk. We analyze the determinants of firm-level climate risk using natural disasters and firm attributes and find that 60% of its variation is due to within-firm variation, and thus it mostly captures idiosyncratic risk at the firm level. We also examine the relation between climate risk and stock price volatility, as well as firm responses to climate risk. The results suggest that firms with higher unexpected climate risk significantly increase their investment while decreasing their employment in subsequent years.
Hedging, Liquidity, and Productivity
AbstractWe study the effects of liquidity and productivity on corporate hedging decisions using a comprehensive dataset of oil and gas producers. Over a longer sample period than prior literature, we discover that hedging intensity is positively correlated with unrealized hedging gains and output prices, but negatively with operating cash flows. These new empirical patterns together challenge existing risk management models as unrealized hedging gains represent an unexpected shock to internal liquidity, while both operating cash flows and output prices are positively related to productivity. Incorporating procyclical collateral capacity and production-dependent depreciation into existing models can explain our empirical findings.
- G3 - Corporate Finance and Governance