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

Hahnenstein, Lutz; Köchling, Gerrit; Posch, Peter N.

doi:10.1111/jbfa.12489

Cited by 8 publications

(4 citation statements)

References 77 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Different methods are used for risk assessment and principles, which include the use of statistical methods to assess, for example, the level of financial security of a business using cost theory. Such a method can be referred to as Enterprise Risk Management, which manages risks in an integrated holistic manner [47,48]. The purpose of any enterprise is to create a quality product with a special value for a specific market.…”

Section: Development Of the Value Chain Conceptmentioning

confidence: 99%

Value Chain Analysis and Attractiveness of the Telecommunications Industry in Mongolia

Jambal

2022

SHS Web Conf.

View full text Add to dashboard Cite

During the 4th Industrial Revolution and the 3rd Wave of Digitalization, the telecommunications sector developed rapidly and played a key role in accelerating economic development and competitiveness. Researchers and experts point out that the sector is an important tool to directly and indirectly support the implementation of the 17 goals of the 2030 Sustainable Development Goals. In this context, a demand it is important for the information and communications technologies (ICT) companies to make strategic changes, modernize their business processes, analyse key technology operations, and evaluate the effectiveness of supply, human resources, financial, and management policies. In order to create a distinct competitive advantage, key activities in the sector, such as procurement, internal operations, and sales channels, will be strategically coordinated, and human resources, technology, finance, and management will be configured to assist. Therefore, industry-wide value chain analysis will explore the challenges related to the supply of information and communication raw materials, technology-based cooperation, and legal and regulatory issues. This research aims to assess the value chain of the telecommunication services and define the gaps, which are drawbacks of the development. This paper will be a foundation for further studies on industry profitability and competitiveness by focusing on the areas that are essential to value creation in end-to-end services such as mobile communications, internet, and cable television.

show abstract

Section: Development Of the Value Chain Conceptmentioning

confidence: 99%

Value Chain Analysis and Attractiveness of the Telecommunications Industry in Mongolia

Jambal

2022

SHS Web Conf.

View full text Add to dashboard Cite

show abstract

“…Financial distress motivates firms to manage risks (Purnanandam, 2008), and firms in financial distress have a higher incentive to engage in risk-reducing activities (Géczy et al, 1997). Hahnenstein et al (2020) provide evidence 3 For example, China National Petroleum Corporation, the world's third-largest oil company, receives a government subsidy of 919 million RMB, including a tax refund to offset the effect of the oil-import price being higher than the oil-sale price, and have a lower probability of financial distress caused by the volatility of CPs.…”

Section: Hypothesis Developmentmentioning

confidence: 99%

“…Using a novel estimation approach based onMerton's (1974) structural model,Hahnenstein et al (2020) estimate the ex-ante expected financial distress costs as a fraction of an assets-or-nothing put option. Their findings support the financial distress costs theory of corporate hedging.…”

mentioning

confidence: 99%

State ownership and the risk‐reducing effect of corporate derivative use: Evidence from China

Guo

Pan

Tian

2021

Business Fin & Account

View full text Add to dashboard Cite

Using hand-collected derivative use data on publicly listed firms in China, we document that derivative use has a significant risk-reducing effect, but this effect is 40% weaker in state-owned enterprises (SOEs) than in non-SOEs. We also find that soft-budget constraints and information transmission inefficiency are two mechanisms through which state ownership impedes this risk reduction. First, financial distress reduces the impact of the soft-budget constraints, mitigating the weaker risk-reducing effect of state control. Second, the risk-reducing effect of derivative use is weaker in local SOEs than in central SOEs, as the former are subject to more information frictions than the latter. Our paper provides new information and insight into risk management effectiveness from the perspective of ownership identity.

show abstract

“…Hahnenstein et al. (2021) explore financial distress costs in hedging activities measured as the notional amount and fair value of derivatives to support the financial distress theory of corporate hedging.…”

Section: Institutional Background and Related Literaturementioning

confidence: 99%

Enhanced disclosure of credit derivatives, information asymmetry and credit risk

Zhao

2021

Business Fin & Account

View full text Add to dashboard Cite

This study examines the extent to which enhanced disclosure of credit derivatives [Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) Financial Accounting Standards (FAS) No. 133‐1] reduces information asymmetry and credit derivative sellers who experience a decrease in information asymmetry. I find that bid‐ask spread for credit derivative sellers with positive net protection is reduced in the post‐period, whereas that of sellers with negative net protection and the control groups is not. These results are consistent with the conjecture that market participants use enhanced disclosure to confirm or correct previous expectations about sellers’ credit risk. In addition, results in high versus low institutional groups suggest that bid‐ask spreads reduce in both groups but reduce more in the high institutional group in the post‐period, possibly due to information environment differences. Finally, I investigate the information content of two credit derivative exposure measures: maximum payment amount and fair value. Consistent with McAnally (1996), I find that the maximum payment amount is credit risk‐relevant. Thus, enhanced disclosure facilitates monitoring risk concentration and evaluating credit risk, thereby contributing to the stabilization of capital markets prior to regulation of the credit default swap (CDS) market.

show abstract

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

Cited by 8 publications

References 77 publications

Value Chain Analysis and Attractiveness of the Telecommunications Industry in Mongolia

Value Chain Analysis and Attractiveness of the Telecommunications Industry in Mongolia

State ownership and the risk‐reducing effect of corporate derivative use: Evidence from China

Enhanced disclosure of credit derivatives, information asymmetry and credit risk

Contact Info

Product

Resources

About