Corporate hedging and capital structure decisions: towards an integrated framework for value creation

Lutz Hahnenstein () and Klaus Röder
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Lutz Hahnenstein: IKB Deutsche Industriebank AG
Klaus Röder: University of Regensburg, Postal: Professor of Finance, Universität Regensburg,, Lehrstuhl für Betriebswirtschaftslehre, insbesondere Finanzdienstleistungen

Journal of Financial Transformation, 2006, vol. 17, 161-168

Abstract: We suggest a joint optimization model for a firm’s hedging and leverage decisions that helps to establish an integrated framework for value creation. Rather than artificially separating the two interrelated parts of the firm’s financial policy, we treat both corporate decision variables as endogenous. We argue that exogenous differences between financial distress costs across firms, and particularly across industries, simultaneously influence corporate risk management and capital structure decisions. Using anecdotal evidence, our focus is not on the so-called direct bankruptcy costs, but rather on the cross-sectional variation in indirect bankruptcy costs, which may result from a deterioration of relationships with customers, suppliers,or other stakeholders prior to the legal act of bankruptcy.

Keywords: corporate hedging; leverage; capital structure; risk management; shareholder value; bankruptcy cost; cds spreads; market price risk; trade-off model; market imperfections (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:ris:jofitr:0874

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