@article{4eb4c5dd6cd44b7f923184f8e3bcb685,
title = "Derivatives supply and corporate hedging: Evidence from the safe harbor reform of 2005",
abstract = "This article analyzes the importance of supply-side fluctuations for corporate hedging. To establish a causal link, we exploit a regulatory change that allows derivatives counterparties to circumvent the Bankruptcy Code{\textquoteright}s automatic stay: the Safe Harbor Reform of 2005. Following the reform-induced expansion in the availability of derivatives, fuel hedging by airlines nearing financial distress (those that benefited most from the reform) significantly increased in comparison with financially sound airlines. We find that the hedging propensity similarly increased in a general sample of nonfinancial firms. In line with theory, we also find that operating performance increased for the affected firms.",
author = "Erasmo Giambona and Ye Wang",
note = "Funding Information: ∗We are especially thankful for comments from Philip Strahan (the editor) and two anonymous referees. We are also grateful for comments from Tim Adam (University of Oklahoma 2017 Energy and Commodities Finance Conference discussant), Murillo Campello, Anthony Casey, Jess Cornaggia, Andrea Gamba (CICF 2018 discussant), and Kristine Watson-Hankins (WFA discussant) and seminar participants at the CICF 2018 (Tianjin, China), the Italian Security and Exchange Commission, the University of Oklahoma 2017 Energy and Commodities Finance Conference, the University of Amsterdam, the University of International Business and Economics, the University of Connecticut, and the 2018 WFA meetings. Further, we are thankful to Michael Etkin, Esq., from Lowenstein Sandler LLP and Shmuel Vasser, Esq., from Dechert LLP for extensive discussions on the legal treatment of derivatives in bankruptcy. Finally, we are indebted to Karca Aral for extensive discussions on the role of operational efficiency for hedging. Erasmo Giambona acknowledges financial support from The Risk Institute at Ohio State University. Send correspondence to Erasmo Giambona, Syracuse University, Department of Finance, 721 University Avenue, Syracuse, NY 13244-2450; telephone: 315-443-4885. E-mail address: egiambon@syr.edu. Publisher Copyright: {\textcopyright} The Author(s) 2020.",
year = "2021",
doi = "10.1093/RFS/HHAA015",
language = "English (US)",
volume = "33",
pages = "5015--5050",
journal = "Review of Financial Studies",
issn = "0893-9454",
publisher = "Oxford University Press",
number = "11",
}