团队

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.

This paper examines the incentive effects of a mandatory personal deductible in liability insurance contracts for directors and officers (D&Os). Exploiting a novel German law that mandates personal deductibles for executives, we document positive returns for affected firms around the first announcement of the plan to impose a personal deductible. We also find evidence of long-run effects: affected firms decrease risk taking in operational activities and financial reporting, and improve the quality of takeover decisions. Our study shows that the structure of D&O insurance contracts matters because mandating that D&Os have “skin in the game” appears to lead to real effects on firm value.