Do firms hedge in order to avoid financial distress costs? New empirical evidence using bank data

Artikel

We present a new approach to test empirically the financial distress costs theory of corporate hedging. We estimate the ex-ante expected financial distress costs, which serve as a starting point to construct further explanatory variables in an equilibrium setting, as a fraction of the value of an asset-or-nothing put option on the firm's assets. Using single-contract data of the derivatives' use of 189 German middle-market companies that stems from a major bank as well as Basel II default probabilities and historical accounting information, we are able to explain a significant share of the observed cross-sectional differences in hedge ratios. Hence, our analysis adds further support for the financial distress costs theory of corporate hedging from the perspective of a financial intermediary.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Journal: Journal of Business Finance & Accounting ; ISSN: 1468-5957 ; Volume: 48 ; Year: 2021 ; Issue: 3-4 ; Pages: 718-741 ; Hoboken, NJ: Wiley

Klassifikation und Themen

• Klassifikation: Management
• Thema: bankruptcy costs ; corporate hedging ; financial distress ; derivatives

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Hahnenstein, Lutz ; Köchling, Gerrit ; Posch, Peter N.
• Ereignis: Veröffentlichung
• (wer): Wiley
• (wo): Hoboken, NJ
• (wann): 2021

Weitere Informationen

• DOI: doi:10.1111/jbfa.12489
• Handle: http://hdl.handle.net/10419/230224
• Letzte Aktualisierung: 10.03.2025, 11:43 MEZ