Post by Sapphire Capital on Jul 16, 2008 6:19:17 GMT 4
The Relationship between Hedging Through Forwards, Futures and Swaps and Corporate Capital Structure in Malaysia
M. FAZILLAH
University of Malaya
NOOR AZLINNA AZIZAN
University of Malaya
TAY SIANG HUI
University of Malaya
Icfai Journal of Derivatives Markets, Vol. 5, No. 2, pp. 37-52, April 2008
Abstract:
This paper focuses on the simultaneity relationship between hedging through forwards, futures, swaps and capital structure for non-financial Malaysian firms. The determinants of hedging and capital structure are ascertained and a two-stage regression analysis using pooled data of firms listed on Malaysian Stock Exchange, Bursa Malaysia, from 2001-2005 is performed. The analysis shows that simultaneity relationship exists between hedging and capital structure. Hedging reduces financial distress cost and increases firm's debt capacity. Since there are tax incentives in debt financing, firms will be induced to borrow more to take advantage of the potential tax benefits. However, increase in debt will further increase the likelihood of financial distress, thus firms will hedge more to mitigate the increased risks.
papers.ssrn.com/sol3/papers.cfm?abstract_id=1114007
M. FAZILLAH
University of Malaya
NOOR AZLINNA AZIZAN
University of Malaya
TAY SIANG HUI
University of Malaya
Icfai Journal of Derivatives Markets, Vol. 5, No. 2, pp. 37-52, April 2008
Abstract:
This paper focuses on the simultaneity relationship between hedging through forwards, futures, swaps and capital structure for non-financial Malaysian firms. The determinants of hedging and capital structure are ascertained and a two-stage regression analysis using pooled data of firms listed on Malaysian Stock Exchange, Bursa Malaysia, from 2001-2005 is performed. The analysis shows that simultaneity relationship exists between hedging and capital structure. Hedging reduces financial distress cost and increases firm's debt capacity. Since there are tax incentives in debt financing, firms will be induced to borrow more to take advantage of the potential tax benefits. However, increase in debt will further increase the likelihood of financial distress, thus firms will hedge more to mitigate the increased risks.
papers.ssrn.com/sol3/papers.cfm?abstract_id=1114007