Corporate hedging and the cost of debt

Chen, Jun; King, Tao‐Hsien Dolly

doi:10.1016/j.jcorpfin.2014.09.006

Cited by 106 publications

(100 citation statements)

References 62 publications

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“…Judge (2006) finds a robust relationship between financial distress costs and foreign currency hedging decisions, which is much stronger than in many previous studies in the UK. Recently, Chen and King (2014) examined 1832 non-financial American firms and present significant evidence that is consistent with financial distress cost arguments. In contrast, Charumathi and Kota (2012) state that no evidence exists to support this hypothesis.…”

Section: Literature On Firm Specifics and Derivative Usementioning

confidence: 61%

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Policy uncertainty, derivatives use, and firm-level FDI

2017

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We explore the link between uncertainty in economic policy, firm-level FDI, and firm hedging behavior -building upon a newspaper-based index of economic policy uncertainty (EPU). We find that the relative difference in EPU between home and host country has a significant relationship with FDI. Firms increase their FDI level in countries, which have a low level of EPU relative to their home country. In addition, firms use derivatives more intensively in response to an increase in EPU. Interestingly, the link between EPU and corporate derivatives use varies according to the type of firm. Domestic MNCs make the most effective use of derivatives to hedge against EPU exposure. Journal of International Business Studies (2018) 49, 96-126.

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Section: Literature On Firm Specifics and Derivative Usementioning

confidence: 61%

“…Chen and King (2014) find evidence to support agency costs of debt theory. Yet Charumathi and Kota (2012) do not find evidence in support of the agency cost of debt hypothesis.…”

Section: Literature On Firm Specifics and Derivative Usementioning

confidence: 83%

Policy uncertainty, derivatives use, and firm-level FDI

2017

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“…Graham and Rogers (2002) report that hedging helps increase debt capacity, leading to an average 1.1% increase in firm value. Chen and King (2014) confirm that the bond yield spread for derivatives users is lower than for non-users. Gay et al (2011) report that firms using derivatives have a lower cost of equity than non-users.…”

Section: Financial Hedging and Firm Valuesupporting

confidence: 55%

“…However, corporate risk management becomes valuable due to the existence of market imperfections in practice. Several motivations of corporate financial hedging have been developed in previous literature, including reductions in financial distress costs (Mayers and Smith, 1982;Stulz, 1984;Smith and Stulz, 1985), the alleviation of information asymmetry (DeMarzo and Duffe, 1995), the mitigation of agency costs associated with underinvestment and risk shifting (Stulz, 1984;Froot et al, 1993;Leland, 1998), reductions in the cost of debt (Chen and King, 2014), reductions in the cost of equity (Gay et al, 2011), and the alleviation of effective tax payments (Graham and Rogers, 2002). Survey results also suggest that academics commonly support the view that corporate financial hedging generally helps firms manage risks efficiently and increases shareholder value.…”

Section: Financial Hedging and Firm Valuementioning

confidence: 99%

Financial Hedging and Firm Performance: Evidence from Cross‐border Mergers and Acquisitions

Chen

Han

Zeng

2016

Euro Fin Management

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Using a sample of 1,369 cross‐border acquisitions announced by Standard & Poor's 1500 firms between 2000 and 2014, we find strong evidence that derivatives users experience higher announcement returns than non‐users, which translates into a US$ 193.7 million shareholder gain for an average‐sized acquirer. In addition, we find that acquirers with hedging programmes have higher deal completion probabilities, longer deal completion times, and better long‐term post‐deal performance. We confirm our findings after employing an extensive array of models to address potential endogeneity. Overall, our results provide new insights into a link between corporate financial hedging and firm performance.

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“…In line with previous studies (Allayannis and Weston, 2001;Davis, 2009;Hu and Wee, 2010;Bartram, Brown, and Conrad, 2011;Chen and King, 2014;Mishra, 2015;Kim, Papanastassiou, and Nguyen, 2017), this study adopts Tobin's Q as a proxy of firm value. Tobin's Q is the market value of assets divided by replacement cost.…”

Section: Firm Valuementioning

confidence: 73%

The Impact of Climate Change Risks on Firm Value: Evidence from the Korea

Park¹,

Noh²

2017

Glob Bus Financ Rev

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A B S T R A C TThis study examines the relationship between climate change risks and firm value using listed Korean companies that are subject to the Target Management System from 2011 to 2015. The proxies of climate change risks are levels of greenhouse gas emissions and energy consumption, and the proxy of firm value is the Tobin's Q. We find that higher levels of greenhouse gas emissions and energy consumption have a greater negative impact on firm value. Moreover, these relationships are stronger in the group of industries with high climate change risks. This study presents evidence that climate change risks may also have an impact on the value of companies in newly industrialized countries. We try to minimize self-selection bias by using greenhouse gas emissions and energy consumption data disclosed in accordance to the local law. Lastly, this study can be used to lay the foundation for policy making by confirming that making efforts to cut greenhouse gas emissions and energy consumption to levels lower than the industry average is important.

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Corporate hedging and the cost of debt

Cited by 106 publications

References 62 publications

Policy uncertainty, derivatives use, and firm-level FDI

Policy uncertainty, derivatives use, and firm-level FDI

Financial Hedging and Firm Performance: Evidence from Cross‐border Mergers and Acquisitions

The Impact of Climate Change Risks on Firm Value: Evidence from the Korea

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