Which of the following statements is true companies hedging behavior?
A)Managers hedge because they are diversified.
B)Hedging can increase debt capacity.
C)Unregulated companies are found to hedge more than regulated ones.
D)Managers want to increase expected bankruptcy costs.
E)Managers hedge because owners are undiversified.

Question

Quizplus · Accepted Answer

Hedging can increase debt capacity by reducing the volatility of a company's cash flows, making it easier to service debt and potentially allowing the company to take on more debt.

Which of the Following Statements Is True Companies Hedging Behavior