Authors: | Hahnenstein, Lutz Köchling, Gerrit Posch, Peter N. |
Title: | Do firms hedge in order to avoid financial distress costs? New empirical evidence using bank data |
Language (ISO): | en |
Abstract: | 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. |
Subject Headings: | Bankruptcy costs Corporate hedging Financial distress Derivatives |
Subject Headings (RSWK): | Insolvenz Hedging |
URI: | http://hdl.handle.net/2003/40935 http://dx.doi.org/10.17877/DE290R-22785 |
Issue Date: | 2020-08-11 |
Rights link: | https://creativecommons.org/licenses/by/4.0/ |
Appears in Collections: | Professur Finance |
Files in This Item:
File | Description | Size | Format | |
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Business Fin Account - 2020 - Hahnenstein - Do firms hedge in order to avoid financial distress costs New empirical.pdf | 737.53 kB | Adobe PDF | View/Open |
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