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Two Essays On Corporate And Institutional Investors’ Usage Of Options, Financial Constraints, And Firm Performance, Bharat Patil

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This dissertation consists of two major parts. Essay I examines the relationship between the firm’s derivative risk management and its financial constraint. Firms face a wedge between their internal and external financing for their investments. I test whether this wedge reduces the firm’s financial constraint when it hedges using interest rate, foreign currency, and commodity derivatives. Using a difference-in-difference framework around the implementation of Financial Accounting Standard (FAS) 123R, this study shows a strong causal relationship between hedging intensity and the financial constraint. I find that net debt increases for the derivative hedging firms, on the other hand, cash holding …