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

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dc.contributor.authorHahnenstein, Lutz
dc.contributor.authorKöchling, Gerrit
dc.contributor.authorPosch, Peter N.
dc.date.accessioned2022-06-02T12:11:26Z
dc.date.available2022-06-02T12:11:26Z
dc.date.issued2020-08-11
dc.description.abstractWe 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.en
dc.identifier.urihttp://hdl.handle.net/2003/40935
dc.identifier.urihttp://dx.doi.org/10.17877/DE290R-22785
dc.language.isoende
dc.relation.ispartofseriesJ Bus Fin Account;48(3-4)
dc.rights.urihttps://creativecommons.org/licenses/by/4.0/
dc.subjectBankruptcy costsen
dc.subjectCorporate hedgingen
dc.subjectFinancial distressen
dc.subjectDerivativesen
dc.subject.ddc330
dc.subject.rswkInsolvenzde
dc.subject.rswkHedgingde
dc.titleDo firms hedge in order to avoid financial distress costs? New empirical evidence using bank dataen
dc.typeTextde
dc.type.publicationtypearticlede
dcterms.accessRightsopen access
eldorado.secondarypublicationtruede
eldorado.secondarypublication.primarycitationHahnenstein, L, Köchling, G, Posch, PN. Do firms hedge in order to avoid financial distress costs? New empirical evidence using bank data. J Bus Fin Acc. 2021; 48: 718– 741. https://doi.org/10.1111/jbfa.12489de
eldorado.secondarypublication.primaryidentifierhttps://doi.org/10.1111/jbfa.12489de

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