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


  • Hahnenstein, Lutz

    () (IKB Deutsche Industriebank AG)

  • Röder, Klaus

    (University of Regensburg)


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.

Suggested Citation

  • Hahnenstein, Lutz & Röder, Klaus, 2006. "Corporate hedging and capital structure decisions: towards an integrated framework for value creation," Journal of Financial Transformation, Capco Institute, vol. 17, pages 161-168.
  • Handle: RePEc:ris:jofitr:0874

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    More about this item


    corporate hedging; leverage; capital structure; risk management; shareholder value; bankruptcy cost; cds spreads; market price risk; trade-off model; market imperfections;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill


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