Abstract

https://ssrn.com/abstract=934580
 


 



Corporate Hedging and Capital Structure Decisions: Towards an Integrated Framework for Value Creation


Lutz Hahnenstein


Talanx Asset Management GmbH

Klaus Röder


University of Regensburg - Faculty of Business, Economics & Information Systems

August 28, 2005

Journal of Financial Transformation, Vol. 17, pp. 161-168, 2006

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 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, risk management, capital structure, leverage, bankruptcy costs

JEL Classification: D81, G33


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Date posted: October 5, 2006 ; Last revised: July 19, 2011

Suggested Citation

Hahnenstein, Lutz and Röder, Klaus, Corporate Hedging and Capital Structure Decisions: Towards an Integrated Framework for Value Creation (August 28, 2005). Journal of Financial Transformation, Vol. 17, pp. 161-168, 2006. Available at SSRN: https://ssrn.com/abstract=934580

Contact Information

Lutz Hahnenstein (Contact Author)
Talanx Asset Management GmbH ( email )
Charles-de-Gaulle-Platz 1
Cologne, 50679
Germany
Klaus Röder
University of Regensburg - Faculty of Business, Economics & Information Systems ( email )
Universitstrasse 31
Regensberg D-93053
Germany
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