Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/230224
Authors: 
Hahnenstein, Lutz
Köchling, Gerrit
Posch, Peter N.
Year of Publication: 
2020
Citation: 
[Journal:] Journal of Business Finance & Accounting [ISSN:] 1468-5957 [Volume:] [Issue:] [Pages:] n/a-n/a
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.
Subjects: 
bankruptcy costs
corporate hedging
financial distress
derivatives
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by/4.0/
Document Type: 
Article
Document Version: 
Published Version

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