értekezés - Budapesti Corvinus Egyetem

exchange rate risk. Hence, hedging strategies are either strategically neutral or strategic
complements with respect to the level of hedging. At the same time, hedging policies are
either strategically neutral or strategic substitutes with respect to the direction of the hedge.
If in equilibrium partial hedging is chosen, Mello and Ruckes [2004] show that the extent
of hedging increases with exchange rate volatility, as well as with the amount of degree of
firms’ indebtedness. With more volatile exchange rates, firms do not have to deviate as
much to gain distance from their rivals as they do during periods of low exchange rate
uncertainty. Also, a firm with less debt can afford to take greater risks and therefore it
hedges less as opposed to a more indebted firm. It is also reasonable to conclude that
hedging decreases with the benefit of an increase in relative equity, β
+ − β − , and increases
with the marginal cost of resorting to outside funds.
It is important to note that the model’s results depend on the assumption of imperfect
competition. If firms are atomistically small, strategic effects are irrelevant and there is no
incentive to increase profit variability by not hedging exchange rate exposure. Thus, the
above results speak primarily to industries in which there are a few significant players
competing head to head.
+ −
Mello and Ruckes [2004] argue that firms in oligopolistic industries with β > β hedge
less the higher their operating leverage is. At first glance it seems counterintuitive for firms
in industries requiring high levels of fixed costs to hedge less. However, intense productmarket
competition, for example when firms produce with a high level of fixed costs,
implies that a financial advantage is a significant factor in tipping the scale towards one of
the rivals and increasing its profits considerably. Oligopoly profits in such industries are
relatively small and a relative financial advantage over competitors proves very valuable
because an eventual shake-out will make firms leave the market and increase profits for the
survivors.
While product-market competition affects hedging choices, Mello and Ruckes [2004] show
that hedging itself feeds back into the degree of competition and influences the production
level. In order to see it, note first that firms’ production choices depend on the financial
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189 If firm size can be associated with a lower penalty from accessing external financial markets, this is
consistent with some empirical evidence finding larger firms hedging less.
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