Callable Bonds, Interest-Rate Risk, and the Supply Side of Hedging
57 Pages Posted: 9 Mar 2004
Date Written: July 2004
Abstract
We show that firms attach call options to debt issues to manage interest-rate risk and characterize the empirical determinants of this hedging decision. Our results affirm that firms' hedging choices are explained by theories of hedging demand, but more importantly, provide novel evidence that the supply side of hedging is equally important. In contrast to studies based on OTC derivatives, small firms are more likely to hedge in our setting, in which supply-side barriers are absent. We show that there is a secular, robust shift away from callable bonds in the 1990s, when supply-side barriers to hedging declined. This shift is more likely when firms disclose derivatives usage disclosed in their 10-K's
Keywords: Hedging, Risk Management, Callable Bonds
JEL Classification: G30, G32
Suggested Citation: Suggested Citation
Do you want regular updates from SSRN on Twitter?
Recommended Papers
-
Risk Management: Coordinating Corporate Investment and Financing Policies
By Kenneth Froot, David S. Scharfstein, ...
-
Why Firms Use Currency Derivatives
By Christopher Geczy, Bernadette A. Minton, ...
-
The Use of Foreign Currency Derivatives and Firm Market Value
By George Allayannis and James Weston
-
Exchange Rate Exposure, Hedging, and the Use of Foreign Currency Derivatives
By George Allayannis and Eli Ofek
-
Do Firms Hedge in Response to Tax Incentives?
By John R. Graham and Daniel A. Rogers
-
How Much Do Firms Hedge with Derivatives?
By Wayne R. Guay and S.p. Kothari
-
How Much Do Firms Hedge with Derivatives?
By Wayne R. Guay and S.p. Kothari
-
By John M. Griffin and René M. Stulz