Corporate derivatives use and the cost of equity外文翻译.pdfVIP

Journal of Banking Finance 35 (2011) 1491–1506 Contents lists available at ScienceDirect Journal of Banking Finance journal homepag e: www.elsevier.c om/locate/jbf Corporate derivatives use and the cost of equity Gerald D. Gay a,⇑, Chen-Miao Lin b, Stephen D. Smith a,1 a Georgia State University, United States b Clayton State University, United States a r t i c l e i n f o a b s t r a c t Article history: We investigate the relation between derivatives use and corporations’ cost of equity capital. Using a large Received 21 February 2009 sample of non-financial firms, we compute and analyze (i) the relative cost of equity of firms that use Accepted 31 October 2010 derivatives and those that do not; and (ii) the change in cost of equity experienced by firms initiating Available online 3 November 2010 derivatives programs. We find that the cost of equity of derivatives users is lower than non-users by 24–78 basis points. Our results are robust to specifications that account for potential endogeneity related JEL classification: to a firm’s derivatives use and capital structure decisions. We further find that the reduction in the cost of G12 equity is attributable to both lower market beta and SMB beta, suggesting that firms use derivatives to G13 G32 reduce their financial distress risk and that this distress risk has a systematic com