Effects of incomplete information on risk management

Hwa-Sung Kim

Finance Research Letters, 2024, vol. 64, issue C

Abstract: Recent research shows that while the creditors’ interests determine an issuer’s hedging policy, creditors observe incomplete information regarding the cash flow. This study examines hedging effects with incomplete information through a real-option model, thereby deriving associated implications. We show that the difference in firm values between hedged and unhedged policies increases with more incomplete information. The higher the hedging efficiency, the larger the difference in hedging values across the degrees of incomplete information. The hedging effect decreases with shareholders’ bargaining power in renegotiations. Our findings imply that creditors are more likely to impose hedging requirements when facing more incomplete information.

Keywords: Incomplete information; Risk management; Hedging requirement; Debt renegotiation (search for similar items in EconPapers)
JEL-codes: D81 G30 G32 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544612324004665
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:64:y:2024:i:c:s1544612324004665

DOI: 10.1016/j.frl.2024.105436

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().