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On the Determinants of Corporate Hedging

On the Determinants of Corporate Hedging ABSTRACT Finance theory indicates that hedging increases firm value by reducing expected taxes, expected costs of financial distress, or other agency costs. This paper provides evidence on these hypotheses using survey data on firms' use of forwards, futures, swaps, and options combined with COMPUTSTAT data on firm characteristics. Of 169 firms in the sample, 104 firms use hedging instruments in 1986. The data suggest that firms which hedge face more convex tax functions, have less coverage of fixed claims, are larger, have more growth options in their investment opportunity set, and employ fewer hedging substitutes. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

On the Determinants of Corporate Hedging

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References (20)

Publisher
Wiley
Copyright
1993 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.1993.tb04709.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT Finance theory indicates that hedging increases firm value by reducing expected taxes, expected costs of financial distress, or other agency costs. This paper provides evidence on these hypotheses using survey data on firms' use of forwards, futures, swaps, and options combined with COMPUTSTAT data on firm characteristics. Of 169 firms in the sample, 104 firms use hedging instruments in 1986. The data suggest that firms which hedge face more convex tax functions, have less coverage of fixed claims, are larger, have more growth options in their investment opportunity set, and employ fewer hedging substitutes.

Journal

The Journal of FinanceWiley

Published: Mar 1, 1993

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