Product Price Risk and Liquidity Management: Evidence from the Electricity Industry

• 成果类型: Article
• 署名作者: Lin, Chen; Schmid, Thomas; Weisbach, Michael S.
• 署名单位: University of Hong Kong; University System of Ohio; Ohio State University; National Bureau of Economic Research; European Corporate Governance Institute
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2020.3579
• 发表日期: 2021
• 页码: 2519-2540
• 关键词: electricity price volatility; Cash holdings; weather volatility; operating flexibility; hedging

摘要

Product price risk is a potentially important factor for firms' liquidity management. A natural place to evaluate the impact of this risk on liquidity management is the electricity industry, because producing firms face substantial price volatility in wholesale markets. Empirically, higher volatility of electricity prices leads to an increase in cash holdings, and this effect is robust to instrumenting for price risk using weather volatility. Cash increases more with price risk in firms using inflexible production technologies and those that cannot easily hedge electricity prices, indicating that operating flexibility and hedging are substitutes for liquidity management.