Risk management and optimal capital structure under ambiguity

Hwa-Sung Kim

Finance Research Letters, 2021, vol. 40, issue C

Abstract: This study examines how managers’ perceived ambiguity influences risk management policies and capital structure decisions. After deriving the optimal hedge ratio and leverage ratio under ambiguity, we show the relationship between our results and recent studies. Our result supports the empirical evidence of a negative relationship between ambiguity and leverage ratio. We also find that the efficiency of hedging is an important factor when examining the value of hedging under ambiguity. The literature shows that the value of hedging increases with ambiguity; however, this result holds only when the efficiency of hedging is large, as in a full-hedge strategy.

Keywords: Ambiguity; Risk management; Minimum variance hedge ratio; Efficiency of hedging; Optimal capital structure (search for similar items in EconPapers)
JEL-codes: D81 G31 G32 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:40:y:2021:i:c:s1544612320311685

DOI: 10.1016/j.frl.2020.101752

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