Firms can use financial derivatives to hedge risks and thereby decrease the probability
of bankruptcy and increase total expected tax shields. Firms also can adjust
their operational policies in response to fluctuations in prices, a strategy that is
often referred to as "operational hedging". In this paper, I investigate the relationship
between the optimal financial and operational hedging strategies for a
firm, which are endogenously determined together with its capital structure. This
allows me to examine how operational hedging affects debt capacity and total expected
tax shields and to make quantitative predictions about the relationship
between debt issues and hedging policies. I also model the effects of asymmetric
information about firms' investment opportunities on their financing and hedging
decisions. First, I examine the case in which both debt and hedging contracts
are observable. Then, I study the case in which firms' hedging activities are not
completely transparent. The models are tested using a data set compiled from the
annual reports of North American gold mining companies. Supporting evidence is
found for the key predictions of the model under asymmetric information.
| Identifer | oai:union.ndltd.org:LACETR/oai:collectionscanada.gc.ca:BVAU.2429/11085 |
| Date | 05 1900 |
| Creators | Liu, Yinghu |
| Source Sets | Library and Archives Canada ETDs Repository / Centre d'archives des thèses électroniques de Bibliothèque et Archives Canada |
| Language | English |
| Detected Language | English |
| Type | Electronic Thesis or Dissertation |
| Relation | UBC Retrospective Theses Digitization Project [http://www.library.ubc.ca/archives/retro_theses/] |
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