The Joint Hedging and Leverage Decision

نویسندگان

  • John Gould
  • Bruce Grundy
  • Ning Gong
چکیده

The validating roles of hedging and leverage as value-adding corporate strategies arise from their beneficial manipulation of deadweight market impositions such as taxes and financial distress costs. These roles may even be symbiotic in their value-adding effects, but they are antithetic in their effects on company risk. This study’s modelling analysis indicates that hedging and leverage do interact for net benefit to company value. However there is no straightforward generalisation for the relative financial riskiness of an optimal joint hedging and leverage strategy in comparison to an unhedged optimal leverage strategy or an unhedged and unlevered strategy; the observed relative riskiness depends on the price level for production output and the company’s remaining production life. ∗ I am grateful for the guidance and patience of my dissertation supervisors, Philip Brown and Alex Szimayer. For advice and comments at various stages, many thanks to Bruce Grundy, Ning Gong, Kim Sawyer, Tom Smith, participants of the University of Melbourne’s Department of Finance seminar series, Ken Clements, Robert Durand, Ross Maller and participants of the University of New South Wales’ Department of Banking and Finance seminar series. Thanks also to UWA and FIRN for scholarship assistance during my doctoral study.

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تاریخ انتشار 2007