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Analyzing the impacts of hedging on cost of debt: Indonesia's public listed companies 2007-2013 study case



"Nowadays, the use of hedging strategy as part of its risk management strategy is
becoming essential, particularly in Indonesia. This study investigate further the
corporate finance theories which suggest that firms benefit from hedging due to the
reduction of bankruptcy risk or financial distress and the mitigation of agency
problem. It studies the impact of hedging strategy to the cost of debt in a sample of
183 Indonesian companies (1281 year observations) from 2007 to 2013. Further, this
study also examines the sources of hedging benefit in reducing the cost of debt
through the reduction of financial distress and agency costs.
Panel two-stage-least-square (2SLS) and diagnostic tests are conducted to ensure the
validity of the model. It is proven that, throughout the whole process, there is
significant negative impact of hedging to cost of debt. Empirical result shows that
hedging firms is paying 141 basis point lower cost of debt than the non-hedge firms.
Additionally, it is proven that hedging is more beneficial to firm with higher leverage,
since the reduction of the financial distress is also greater. However, this study also
gives strong evidence that hedging reduces the cost of debt by mitigating the agency
problem.


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M00344Library (Rack Thesis)Available - Available

Detail Information

Series Title
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Call Number
344
Publisher Swiss German University : .,
Collation
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Language
English
ISBN/ISSN
-
Classification
NONE
Content Type
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Media Type
-
Carrier Type
-
Edition
-
Subject(s)
Specific Detail Info
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Statement of Responsibility

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