Risk management with supply contracts

Heitor Almeida, Kristine Watson Hankins, Ryan Williams

Research output: Contribution to journalArticle

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)

LanguageEnglish (US)
Pages4179-4215
Number of pages37
JournalReview of Financial Studies
Volume30
Issue number12
DOIs
StatePublished - Dec 1 2017

Fingerprint

Supply contracts
Obligation
Purchase
Risk management
Steel
Holdup
Management tools
Corporate hedging
Contracting
Cross section
Relationship-specific investments
Forward contracts
Suppliers
Financial hedging
Bargaining power
Substitute
Commodities
Friction
Futures contracts
Derivatives

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

Almeida, H., Hankins, K. W., & Williams, R. (2017). Risk management with supply contracts. Review of Financial Studies, 30(12), 4179-4215. DOI: 10.1093/rfs/hhx051

Risk management with supply contracts. / Almeida, Heitor; Hankins, Kristine Watson; Williams, Ryan.

In: Review of Financial Studies, Vol. 30, No. 12, 01.12.2017, p. 4179-4215.

Research output: Contribution to journalArticle

Almeida, H, Hankins, KW & Williams, R 2017, 'Risk management with supply contracts' Review of Financial Studies, vol. 30, no. 12, pp. 4179-4215. DOI: 10.1093/rfs/hhx051
Almeida H, Hankins KW, Williams R. Risk management with supply contracts. Review of Financial Studies. 2017 Dec 1;30(12):4179-4215. Available from, DOI: 10.1093/rfs/hhx051
Almeida, Heitor ; Hankins, Kristine Watson ; Williams, Ryan. / Risk management with supply contracts. In: Review of Financial Studies. 2017 ; Vol. 30, No. 12. pp. 4179-4215
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