How do firms hedge in financial distress?

Abstract

We examine how firms hedge in financial distress. Using hand‐collected data from oil and gas producers, we find that these firms hedge oil prices during periods of financial distress. Derivative portfolios in these firms are characterized by short put options. These positions are part of a composite three‐way (3W) collar strategy that combines buying put options and selling put and call options with differing strike prices. Because liquidity demand varies with the degree of financial distress, the 3W collar strategy preserves incentives for future growth.

The Effect of Accounting Conservatism, Free Cash Flow and Financial Distress on Company Value

“…Brigham and Houston, (2010: 108) state that free cash flow means cash flow that is actually available to be paid to all investors after the company has placed all of its investments in fixed assets, new products, and working capital needed to maintain operations. which is running (Annafi & Yudowati, 2021;Dudley et al, 2022;Eliu, 2014;Febriml Dwijayanti Universitas Katolik Widya Mandala Surabaya, 2010).…”