A Review of Corporate Hedging Models and Their Relevance in Corporate Finance - Theoretical Economics Letters

TEL > Vol.7 No.2, February 2017

Theoretical Economics Letters

Volume 7, Issue 2 (February 2017)

ISSN Print: 2162-2078 ISSN Online: 2162-2086

Google-based Impact Factor: 1.19 Citations h5-index & Ranking

A Review of Corporate Hedging Models and Their Relevance in Corporate Finance ()

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Download as PDF (Size: 323KB) PP. 102-115

DOI: 10.4236/tel.2017.72010 2,816 Downloads 7,092 Views Citations

Author(s)

Pankaj Gupta

Affiliation(s)

Indian Institute of Management, Indore, India.

ABSTRACT

In this paper, a review of theoretical literature of models providing rational of corporate hedging is done and also addresses the corporate finance issues such as financing and investment. As per definition, hedging is either an insurance contract or an activity reducing the correlation between value and random variable linked with the derivative purchase. It is found that, when considering the modern finance theory after relaxing the assumptions made by Modigliani & Miller, the corporate hedging reduces several costs such as agency cost, distress cost and cost of debt. Also, hedging models are explained reducing the adverse selection problem. An integrated approach based models are also present in the review.

KEYWORDS

Corporate Hedging Models, Capital Structure, Investment Decision

Share and Cite:

Gupta, P. (2017) A Review of Corporate Hedging Models and Their Relevance in Corporate Finance. Theoretical Economics Letters, 7, 102-115. doi: 10.4236/tel.2017.72010.

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