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Author: Mengdong He Publisher: ISBN: Category : Languages : en Pages : 62
Book Description
ABSTRACT How Does Hedging Affect Firm Value – Evidence from the U.S. Airline Industry Mengdong He This study examines the relation between jet fuel hedging and firm value using a sample of 36 publicly-traded U.S. airlines over the period 1992 to 2013. We find a positive hedging premium which suggests that jet fuel hedging adds value to airlines. We then focus our analyses on the specific ways in which jet fuel hedging by airlines can affect firm value. Specifically, we investigate the effect of jet fuel hedging on firm value based on different hedging levels, different levels of jet fuel exposures, different hedger types, different operating costs spent on jet fuel, and different levels of jet fuel price volatility. Our results suggest that airlines can maximize their firm value by increasing the hedged proportion of next year's jet fuel requirements hedged, particularly when they are at a medium level (between 11% and 36%). Next, we find evidence which suggests that selective hedging strategies can help increase an airline’s firm value. In addition, our results suggest that airlines can increase their firm value significantly by increasing the amount of jet fuel hedged if the amount of their operating costs spent on jet fuel is high (> 27%). Fourthly, our results show that investors appear to value jet fuel hedging more in periods of high jet fuel price volatility. For different levels of jet fuel exposures, we find no evidence that the effect of jet fuel hedging on firm value will show any significant differences based on different levels of jet fuel exposures.
Author: Mengdong He Publisher: ISBN: Category : Languages : en Pages : 62
Book Description
ABSTRACT How Does Hedging Affect Firm Value – Evidence from the U.S. Airline Industry Mengdong He This study examines the relation between jet fuel hedging and firm value using a sample of 36 publicly-traded U.S. airlines over the period 1992 to 2013. We find a positive hedging premium which suggests that jet fuel hedging adds value to airlines. We then focus our analyses on the specific ways in which jet fuel hedging by airlines can affect firm value. Specifically, we investigate the effect of jet fuel hedging on firm value based on different hedging levels, different levels of jet fuel exposures, different hedger types, different operating costs spent on jet fuel, and different levels of jet fuel price volatility. Our results suggest that airlines can maximize their firm value by increasing the hedged proportion of next year's jet fuel requirements hedged, particularly when they are at a medium level (between 11% and 36%). Next, we find evidence which suggests that selective hedging strategies can help increase an airline’s firm value. In addition, our results suggest that airlines can increase their firm value significantly by increasing the amount of jet fuel hedged if the amount of their operating costs spent on jet fuel is high (> 27%). Fourthly, our results show that investors appear to value jet fuel hedging more in periods of high jet fuel price volatility. For different levels of jet fuel exposures, we find no evidence that the effect of jet fuel hedging on firm value will show any significant differences based on different levels of jet fuel exposures.
Author: Ahmet Duran Publisher: ISBN: Category : Languages : en Pages :
Book Description
Purpose: Investigation of the relation between firms' values and aviation fuel hedging activities via a dynamic panel data methodology for the major U.S. passenger airlines during the period 2002-2011. Design/methodology/approach: We use data from nine U.S. major passenger airlines representing 77.2 per cent of the U.S. domestic airline industry, in terms of available seat miles. The data is taken from the Securities and Exchange Commission (SEC) 10-K filings, the Bloomberg database and the Bureau of Transportation Statistics. In accordance with the dynamic panel data methodology, we use cross-sectional dependence tests, first generation panel unit root tests, the Durbin-Hausman panel co-integration test, and the panel fully modified ordinary least square estimator, respectively. Findings: The Durbin-Hausman panel co-integration (DHp) test reveals a statistically significant long run relationship between firms' values and aviation fuel hedging activities for the U.S. major passenger airlines. Moreover, the results of the fully modified least square estimation suggest that aviation fuel hedging has positive impact on those firms' values. Additionally, we discuss the U.S. major passenger airlines loss of ten to fifteen per cent of their value in the global financial crisis. Another important finding is that merger agreements results in an almost 10 per cent increase in those firms' values. Research limitations/implications: Clear hedging information was manually searched for in the airlines' annual audited reports. This process was both time consuming, and labour intensive. Originality/value: This is the first study that focuses exclusively on the major U.S. passenger airlines, for the effects of hedging strategies on firm value. Furthermore, we use the DHp test which allows for a co-integration relationship in the case of integrated of different order series.
Author: Simo M. Dafir Publisher: John Wiley & Sons ISBN: 1119026725 Category : Business & Economics Languages : en Pages : 325
Book Description
A hands-on guide to navigating the new fuel markets Fuel Hedging and Risk Management: Strategies for Airlines, Shippers and Other Consumers provides a clear and practical understanding of commodity price dynamics, key fuel hedging techniques, and risk management strategies for the corporate fuel consumer. It covers the commodity markets and derivative instruments in a manner accessible to corporate treasurers, financial officers, risk managers, commodity traders, structurers, as well as quantitative professionals dealing in the energy markets. The book includes a wide variety of key topics related to commodities and derivatives markets, financial risk analysis of commodity consumers, hedge program design and implementation, vanilla derivatives and exotic hedging products. The book is unique in providing intuitive guidance on understanding the dynamics of forward curves and volatility term structure for commodities, fuel derivatives valuation and counterparty risk concepts such as CVA, DVA and FVA. Fully up-to-date and relevant, this book includes comprehensive case studies that illustrate the hedging process from conception to execution and monitoring of hedges in diverse situations. This practical guide will help the reader: Gain expert insight into all aspects of fuel hedging, price and volatility drivers and dynamics. Develop a framework for financial risk analysis and hedge programs. Navigate volatile energy markets by employing effective risk management techniques. Manage unwanted risks associated with commodity derivatives by understanding liquidity and credit risk calculations, exposure optimization techniques, credit charges such as CVA, DVA, FVA, etc.
Author: Harold Kent Baker Publisher: Oxford University Press, USA ISBN: 0199331960 Category : Business & Economics Languages : en Pages : 709
Book Description
Investment Risk Management provides an overview of developments in risk management and a synthesis of research on the subject. The chapters examine ways to alter exposures through measuring and managing risk exposures and provide an understanding of the latest strategies and trends within risk management.
Author: Georges Dionne Publisher: John Wiley & Sons ISBN: 1119583128 Category : Business & Economics Languages : en Pages : 416
Book Description
An updated review of the theories and applications of corporate risk management After the financial crisis of 2008, issues concerning corporate risk management arose that demand new levels of oversight. Corporate Risk Management is an important guide to the topic that puts the focus on the corporate finance dimension of risk management. The author—a noted expert on the topic—presents several theoretical models appropriate for various industries and empirically verifies theoretical propositions. The book also proposes statistical modeling that can evaluate the importance of different risks and their variations according to economic cycles. The book provides an analysis of default, liquidity, and operational risks as well as the failures of LTCM, ENRON, and financial institutions that occurred during the financial crisis. The author also explores Conditional Value at Risk (CVaR), which is central to the debate on the measurement of market risk under Basel III. This important book: Includes a comprehensive review of the aspects of corporate risk management Presents statistical modeling that addresses recent risk management issues Contains an analysis of risk management failures that lead to the 2008 financial crisis Offers a must-have resource from author Georges Dionne the former editor of The Journal of Risk and Insurance Corporate Risk Management provides a modern empirical analysis of corporate risk management across industries. It is designed for use by risk management professionals, academics, and graduate students.
Author: Rueyjian Lin Publisher: ISBN: Category : Languages : en Pages : 50
Book Description
This paper examines whether jet fuel hedging increases the market value of airline companies around the world. Using a sample of 69 airline companies from 32 countries over the period 1995 to 2005, we find that jet fuel hedging is positively related to market value. This positive relationship holds in the various sub-samples and is significant for US and non-alliance firms. Moreover, our results show that the risk-taking behavior of executives and the tendency to avoid financial distress are important determinants for the jet fuel hedging activities of non-US and non-alliance airline companies. Alleviating the problem of underinvestment is also an important factor to explain the jet fuel hedging activities of US and non-alliance firms. Our results add support to the growing body of literature which finds that hedging increases firm value for global airline companies.
Author: David Carter Publisher: ISBN: Category : Languages : en Pages : 49
Book Description
This paper investigates the fuel hedging behavior of firms in the US airline industry during 1994-2000 to examine whether such hedging is a source of value for these companies. The investment climate in the airline industry conforms well to the theoretic framework of Froot, Scharfstein, and Stein (1993). Specifically, airline industry investment opportunities correlate positively with jet fuel costs, while higher fuel costs are consistent with lower cash flow. Given that jet fuel costs are hedgeable, airlines with a desire for expansion may find value in hedging future purchases of jet fuel. The results show that jet fuel hedging is positively related to airline firm value. The coefficients on hedging indicator variables in regression analysis suggest that the hedging premium constitutes approximately a 12-16% increase in firm value. We find that the positive relation between hedging and value increases in capital investment. This result is consistent with the assertion that the principal benefit of jet fuel hedging by airlines comes from reduction of underinvestment costs.
Author: M. Kabir Hassan Publisher: Routledge ISBN: 1351061496 Category : Business & Economics Languages : en Pages : 210
Book Description
Most existing texts covering topics in Islamic finance discuss the potential of Islamic banking; very few talk about other forms of financing and the investment activities of Islamic firms from the standpoint of owners and managers. This book fills this gap by looking at the traditional as well as non-traditional financing and investment activities of shariah-compliant companies. The chapters in this edited text offer a full range of topics on corporate finance for Islamic firms, including global comparisons of shariah screening, dividend policy and capital structure of Islamic firms, details of global Islamic equity markets, trends and performance of sukuk markets, and a brief account of derivative securities that can be used in Islamic finance. This is a useful reference for anyone who wishes to learn more about the performance of shariah-compliant companies vis-à-vis conventional firms. The book includes both technical and non-technical information that would be suitable for classroom teaching as well as a reference for postgraduate research students.
Author: Mengdong He
Author: Mengdong He
Author: Rueyjiau Lin
Author: Ahmet Duran
Author: Simo M. Dafir
Author: Harold Kent Baker
Author: Eyden Samunderu
Author: Georges Dionne
Author: Rueyjian Lin
Author: David Carter
Author: M. Kabir Hassan