Get access

Hedging or Market Timing? Selecting the Interest Rate Exposure of Corporate Debt



    Search for more papers by this author
    • Michael Faulkender is from Olin School of Business, Washington University in St. Louis. This paper was previously entitled “Fixed versus Floating: Corporate Debt and Interest Rate Risk Management.” I would like to thank Greg Brown, Kent Daniel, Michael Fishman, Thomas Hazlett, Ravi Jagannathan, Elizabeth Keating, Todd Milbourn, Todd Pulvino, Rick Green, Stephen Sapp, an anonymous referee, and seminar participants at Northwestern University, Rice University, the University of Oklahoma, the University of Miami, the University of Michigan, the University of Minnesota, the University of Virginia, Washington University in St. Louis, and the Western Finance Association Annual Conference for their valuable feedback. I also thank Marc Katz at Bank of America Securities for his helpful discussions, John Cochrane for generously providing data, and Eric Hovey for providing research assistance. I am especially indebted to Mitchell Petersen for his ongoing guidance. All errors are mine.


This paper examines whether firms are hedging or timing the market when selecting the interest rate exposure of their new debt issuances. I use a more accurate measure of the interest rate exposure chosen by firms by combining the initial exposure of newly issued debt securities with their use of interest rate swaps. The results indicate that the final interest rate exposure is largely driven by the slope of the yield curve at the time the debt is issued. These results suggest that interest rate risk management practices are primarily driven by speculation or myopia, not hedging considerations.

Get access to the full text of this article