A smoother ride: companies based in countries with bankruptcy procedures that favour creditors over shareholders have a greater incentive to hedge

Judge, Armit

Abstract

In their seminal work, Nobel prize-winning economists Franco Modigliani and Merton Miller (M&M) argued that in a perfect capital market, where there are no taxes and no contracting costs, such as those associated with bankruptcy, a firm’s choice of financial policy does not affect its market value. As a firm’s hedging policy involves the issue of financial claims against a firm, it is also a component of its financing policy. Therefore, the M&M proposition can be extended to hedging.

• Journal Article Type: Article
• Acceptance Date: May 1, 2016
• Online Publication Date: May 1, 2016
• Publication Date: May 1, 2016
• Deposit Date: Mar 5, 2019
• Peer Reviewed: Peer Reviewed
• Pages: 48-49
• Public URL: https://nottingham-repository.worktribe.com/output/1608141
• Publisher URL: https://www.treasurers.org/ACTmedia/May16TThedging48%E2%80%9349.pdf