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| Author: | Graham, J.R. Rogers, D.A. |
| Title: | Do firms hedge in response to tax incentives? |
| Journal: | Journal of Finance
2002 : APR, VOL. 57:2, p. 815-839 |
| Index terms: | Hedging Companies Taxation Planning Statistical methods USA |
| Language: | eng |
| Abstract: | There are two tax incentives for corporations to hedge: to increase debt capacity and interest tax deductions, and to reduce expected tax liability if the tax function is convex. This study tests whether these incentives affect the extent of corporate hedging with derivatives. Using an explicit measure of tax function convexity, no evidence is found that firms hedge in response to tax convexity. The analysis indicates, however, that firms hedge to increase debt capacity. The results also indicate that firms hedge because of expected financial distress costs and firm size. |
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