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Portrait of Niclas Andrén. Photo.

Niclas Andrén

Head of the Department of Business Administration

Portrait of Niclas Andrén. Photo.

How do Firms Hedge in Financial Distress?

Author

  • Evan Dudley
  • Niclas Andrén
  • Håkan Jankensgård

Summary, in English

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.

Department/s

  • Department of Business Administration
  • Accounting and Corporate Finance

Publishing year

2022-05-03

Language

English

Pages

1324-1351

Publication/Series

Journal of Futures Markets

Volume

42

Issue

7

Document type

Journal article

Publisher

John Wiley & Sons Inc.

Topic

  • Business Administration

Keywords

  • Corporate hedging
  • risk management
  • financial distress
  • economic distress

Status

Published

ISBN/ISSN/Other

  • ISSN: 1096-9934