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Investigating the Simultaneity of Corporate Hedging and Debt Policies: Empirical Evidence from Indonesia

Gadjah Mada International Journal of Business

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Title Investigating the Simultaneity of Corporate Hedging and Debt Policies: Empirical Evidence from Indonesia
 
Creator Suriawinata, Iman Sofian
 
Subject currency derivatives; corporate hedging policy; debt policy
 
Description The primary objective of this paper is to investigate the simultaneity of corporate hedging and debt policies. Using a pooled sample of Indonesian non-financial listed firms covering the periods of 1996-2001, the present study finds evidence that corporate hedging and debt policies are simultaneously determined. That is, the use of debts motivate firms to hedge; but simultaneously, hedging increases debt capacity and induces firms to borrow more in order to take advantage of the tax benefits arising from additional debt capacity. Another important finding is that financially distressed firms –as indicated by their debt restructuring programs– are less motivated to hedge, because such firms will see that the option values of their equity will increase as their cash-flow volatilities increase. Therefore, financially distressed firms tend not to hedge; or at least, hedge lesser compared to those of firms that do not experience financial distress.
 
Publisher Master of Management, Faculty of Economics and Business, Universitas Gadjah Mada
 
Date 2005-06-12
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://journal.ugm.ac.id/gamaijb/article/view/5578
 
Source Gadjah Mada International Journal of Business; Vol 7, No 2 (2005): May-August
2338-7238
1411-1128
 
Language eng
 
Relation http://journal.ugm.ac.id/gamaijb/article/view/5578/4549