Day 1 - Wednesday, 29 July 2009

Information

In the present study we investigate the effects of leverage and growth opportunities on the extent of hedging under financial distress. Contrary to the theories, the results indicate that hedging and leverage decisions are not endogenous. We also found that when the level of financial distress is low, the incremental tax benefits of debt and growth opportunities might not be significant enough to motivate hedging. When the level of financial distress is high, hotel reduce the overall extent of hedging as leverage and growth opportunities increase. Finally, hotel firms’ high level of financial distress might contribute to the negative relationship between management ownership and hedging.

Start Date

29-7-2009 3:15 PM

End Date

7-29-2009 4:15 PM

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IR hedging proceedings.docx (52 kB)
Submission for proceedings

COinS
 
Jul 29th, 3:15 PM Jul 29th, 4:15 PM

Interest Rate Hedging under Financial Distress: The Effects of Leverage and Growth Opportunities

In the present study we investigate the effects of leverage and growth opportunities on the extent of hedging under financial distress. Contrary to the theories, the results indicate that hedging and leverage decisions are not endogenous. We also found that when the level of financial distress is low, the incremental tax benefits of debt and growth opportunities might not be significant enough to motivate hedging. When the level of financial distress is high, hotel reduce the overall extent of hedging as leverage and growth opportunities increase. Finally, hotel firms’ high level of financial distress might contribute to the negative relationship between management ownership and hedging.