www.facultyseminar.com / 09/30/05 Faculty Seminar
11:00am Aziz Lookman, ASU
Business Management
The Business Management department seminar this Friday, Sept. 30th (at 11:00 a.m. in 184 TNRB) will be Aziz Lookman, who will present research entitled:
“Bank Borrowing and Corporate Risk Management”
Abstract
Using a unique, hand-collected dataset, we empirically examine whether bank monitoring mitigates risk shifting problems engendered by debt issuance. Corporate risk management theory argues that firms hedge to reduce borrowing costs. However, for the debt contract to reflect the lowered default risk, bond holders must be able to enforce the firm's hedging policy. Since such monitoring will only be conducted by institutions -- such as banks -- who have the necessary expertise and appropriate economic incentives, we hypothesize that a firm's hedging policy depends on its source of debt. Using a sample of oil and gas producing firms that are exposed to commodity price risk, we test this hypothesis. We find significant differences between hedging policies of bank and non-bank borrowers. Amongst highly levered firms, hedging is positively associated with bank debt but negatively associated with non-bank debt.
Contact me if you have questions. Glenn Christensen 2-1773
Business Management Faculty Research Seminarwww.facultyseminar.com / 09/30/05 Faculty Seminar
11:00am Aziz Lookman, ASU
Business Management
The Business Management department seminar this Friday, Sept. 30th (at 11:00 a.m. in 184 TNRB) will be Aziz Lookman, who will present research entitled:
“Bank Borrowing and Corporate Risk Management”
Abstract
Using a unique, hand-collected dataset, we empirically examine whether bank monitoring mitigates risk shifting problems engendered by debt issuance. Corporate risk management theory argues that firms hedge to reduce borrowing costs. However, for the debt contract to reflect the lowered default risk, bond holders must be able to enforce the firm's hedging policy. Since such monitoring will only be conducted by institutions -- such as banks -- who have the necessary expertise and appropriate economic incentives, we hypothesize that a firm's hedging policy depends on its source of debt. Using a sample of oil and gas producing firms that are exposed to commodity price risk, we test this hypothesis. We find significant differences between hedging policies of bank and non-bank borrowers. Amongst highly levered firms, hedging is positively associated with bank debt but negatively associated with non-bank debt.
Contact me if you have questions. Glenn Christensen 2-1773