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How do Firms Hedge in Financial Distress?

Dudley, Evan ; Andrén, Niclas LU orcid and Jankensgård, Håkan LU (2022) In Journal of Futures Markets 42(7). p.1324-1351
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 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 three-way collar strategy preserves incentives for future growth.
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author
; and
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Corporate hedging, risk management, financial distress, economic distress
in
Journal of Futures Markets
volume
42
issue
7
pages
1324 - 1351
publisher
John Wiley & Sons Inc.
external identifiers
  • scopus:85129498225
ISSN
1096-9934
DOI
10.1002/fut.22336
language
English
LU publication?
yes
id
a974b32b-9a16-4f50-8a4b-6535c880ee55
date added to LUP
2022-04-20 12:59:24
date last changed
2022-07-08 17:00:19
@article{a974b32b-9a16-4f50-8a4b-6535c880ee55,
  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 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 three-way collar strategy preserves incentives for future growth.}},
  author       = {{Dudley, Evan and Andrén, Niclas and Jankensgård, Håkan}},
  issn         = {{1096-9934}},
  keywords     = {{Corporate hedging; risk management; financial distress; economic distress}},
  language     = {{eng}},
  month        = {{05}},
  number       = {{7}},
  pages        = {{1324--1351}},
  publisher    = {{John Wiley & Sons Inc.}},
  series       = {{Journal of Futures Markets}},
  title        = {{How do Firms Hedge in Financial Distress?}},
  url          = {{http://dx.doi.org/10.1002/fut.22336}},
  doi          = {{10.1002/fut.22336}},
  volume       = {{42}},
  year         = {{2022}},
}