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

TEL > Vol.7 No.2, February 2017

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

HTML XML

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

DOI: 10.4236/tel.2017.72010 2,825 Downloads 7,131 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.

Journals Menu

Follow SCIRP

	+1 323-425-8868
	customer@scirp.org
	+86 18163351462(WhatsApp)
	1655362766

	Paper Publishing WeChat

Journals Menu

Home

About SCIRP

Service

Policies