Year: 2000
Author: Breuer, Wolfgang
Credit and Capital Markets – Kredit und Kapital, Vol. 33 (2000), Iss. 1 : pp. 99–136
Abstract
Hedging and Reputation Building in Forward Markets
The present contribution examines the conditions under which entrepreneurial activities, not noticeable in general, may generate positive welfare effects for the economy as a whole in spite of the existence of potential risk incentive problems and the assumption of general risk neutrality. It would be fair to presume that, in order to prevent their creditworthiness from being ranked lower by potential capital donors as a consequence of insolvency, companies show themselves to be interested in making, wherever possible, hedging transactions in contexts of several periods to reduce for themselves the probability of becoming insolvent. The incentive to a company to build a reputation for itself tends to be stronger in standardised futures markets inter alia than in forward markets where the terms and conditions of contract can be shaped individually. It ought to be mentioned for practical reasons that the present contribution justifies the approach of aligning entrepreneurial risk management measures to a μ-ϕ criterion with μ representing the value of the in-payment surpluses expected to remain after satisfaction of creditors (in a single period), whilst ϕ stands for the individual insolvency risk of companies.
Journal Article Details
Publisher Name: Global Science Press
Language: Multiple languages
DOI: https://doi.org/10.3790/ccm.33.1.99
Credit and Capital Markets – Kredit und Kapital, Vol. 33 (2000), Iss. 1 : pp. 99–136
Published online: 2000-01
AMS Subject Headings: Duncker & Humblot
Copyright: COPYRIGHT: © Global Science Press
Pages: 38
Author Details
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