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Do firms hedge in response to tax incentives?

Publication ,  Journal Article
Graham, JR; Rogers, DA
Published in: Journal of Finance
January 1, 2002

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. We test whether these incentives affect the extent of corporate hedging with derivatives. Using an explicit measure of tax function convexity, we find no evidence that firms hedge in response to tax convexity. Our analysis does, however, indicate that firms hedge to increase debt capacity, with increased tax benefits averaging 1.1 percent of firm value. Our results also indicate that firms hedge because of expected financial distress costs and firm size.

Duke Scholars

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Published In

Journal of Finance

DOI

ISSN

0022-1082

Publication Date

January 1, 2002

Volume

57

Issue

2

Start / End Page

815 / 839

Related Subject Headings

  • Finance
  • 3801 Applied economics
  • 3502 Banking, finance and investment
  • 1502 Banking, Finance and Investment
 

Citation

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Graham, J. R., & Rogers, D. A. (2002). Do firms hedge in response to tax incentives? Journal of Finance, 57(2), 815–839. https://doi.org/10.1111/1540-6261.00443
Graham, J. R., and D. A. Rogers. “Do firms hedge in response to tax incentives?Journal of Finance 57, no. 2 (January 1, 2002): 815–39. https://doi.org/10.1111/1540-6261.00443.
Graham JR, Rogers DA. Do firms hedge in response to tax incentives? Journal of Finance. 2002 Jan 1;57(2):815–39.
Graham, J. R., and D. A. Rogers. “Do firms hedge in response to tax incentives?Journal of Finance, vol. 57, no. 2, Jan. 2002, pp. 815–39. Scopus, doi:10.1111/1540-6261.00443.
Graham JR, Rogers DA. Do firms hedge in response to tax incentives? Journal of Finance. 2002 Jan 1;57(2):815–839.
Journal cover image

Published In

Journal of Finance

DOI

ISSN

0022-1082

Publication Date

January 1, 2002

Volume

57

Issue

2

Start / End Page

815 / 839

Related Subject Headings

  • Finance
  • 3801 Applied economics
  • 3502 Banking, finance and investment
  • 1502 Banking, Finance and Investment