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Corporate debt issues and interest rate risk management: Hedging or market timing?

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  • Antoniou, Antonios
  • Zhao, Huainan
  • Zhou, Bilei

Abstract

Apart from the obvious reasons for raising capital, a firm can hedge its interest rate exposure by issuing debt, the value of which moves in an opposite direction from the value of its assets as interest rate varies. We examine whether firms in the UK market make full use of debt issuances for hedging purposes or if they have other considerations. Our evidence shows that firms' choices of debt issues are primarily driven by debt market conditions in an effort to lower their costs of capital rather than managing their firm-specific interest rate exposures. This suggests that market timing, as opposed to hedging, is the primary motivation behind corporate debt issuances.

Suggested Citation

  • Antoniou, Antonios & Zhao, Huainan & Zhou, Bilei, 2009. "Corporate debt issues and interest rate risk management: Hedging or market timing?," Journal of Financial Markets, Elsevier, vol. 12(3), pages 500-520, August.
  • Handle: RePEc:eee:finmar:v:12:y:2009:i:3:p:500-520
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    Cited by:

    1. Christopher F. Baum & Mustafa Caglayan & Abdul Rashid, 2017. "Capital structure adjustments: Do macroeconomic and business risks matter?," Empirical Economics, Springer, vol. 53(4), pages 1463-1502, December.

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