Product Market Competition and Commodity Hedging: Evidence from the Metals Industry

Information from the abstract

This study examines the associations among product market competition, commodity hedging, and income smoothing in the metals industry. Using a text-based measure of competition intensity, we find that firms facing stronger competitive pressures are more likely to hedge commodity price risk. We also find a positive association between commodity hedging and income smoothing through discretionary accruals, suggesting a complementary relationship in reducing performance volatility. Moreover, this positive association weakens as product market competition intensifies. Collectively, these results contribute to our understanding of the associations between product market competition, firms’ risk management, and financial reporting behavior.

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Related topics: Risk Management in Financial Firms · Market Dynamics and Volatility · Auditing, Earnings Management, Governance