Do bondholders value corporate hedging? Evidence for Brazil, Chile and Mexico
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2016-12-14
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Lora, Mayra Ivanoff
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Literature has often examined how hedging affects firm value and cost of capital, but its relation with cost of debt is less studied, especially for Latin American firms. This dissertation examined the impact of derivatives usage over credit spread of the bonds issued by 66 non-financial companies from Brazil, Chile and Mexico, based on the secondary market transactions from 2005 to 2015. To test the hypothesis that hedging reduces credit spread, we performed different regressions based on Chen and King (2014) study. We only found a significant coefficient for hedging and leverage interaction for the post-2008 period, supporting Coutinho, Sheng and Lora (2012) findings that companies were not using derivatives for hedging purpose before the financial crisis and also corroborates Chen and King (2014) hypothesis that more leveraged firms obtain higher benefits from hedging.