Do firms hedge in order to avoid financial distress costs? New empirical evidence using bank data
| Autor: | Peter N. Posch, Lutz Hahnenstein, Gerrit Köchling |
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| Rok vydání: | 2020 |
| Předmět: |
Financial distress
Hedging Insolvenz Financial intermediary Basel II corporate hedging Order (exchange) Accounting ddc:650 0502 economics and business Economics Bankruptcy costs Empirical evidence Hedge (finance) 050208 finance Actuarial science bankruptcy costs 05 social sciences Corporate hedging 050201 accounting financial distress Accounting information system Value (economics) derivatives Business Management and Accounting (miscellaneous) Put option Derivatives Finance |
| Zdroj: | Journal of Business Finance & Accounting. 48:718-741 |
| ISSN: | 1468-5957 0306-686X |
| DOI: | 10.1111/jbfa.12489 |
| Popis: | 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. J Bus Fin Account;48(3-4) |
| Databáze: | OpenAIRE |
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