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| Author: | Cooper, I. Mello, A. |
| Title: | Corporate hedging: the relevance of contract specifications and banking relationships |
| Journal: | European Finance Review
1998 : VOL. 2:2, p. 195-223 |
| Index terms: | FINANCE BANKS HEDGING |
| Language: | eng |
| Abstract: | This article examines the contribution of hedging to firm value and the cost of hedging in a unified framework. Optimal hedging and firm value are explicitly linked to firm risk, the type of debt covenants and the relative priority of the hedging contract. It is shown that in some cases hedging is possible only if the counterparty to the forward contract also holds a significant portion of the debt. Also, the spread in the hedging contract reduces the optimal amount of hedging to less than the minimum-variance hedge ratio. |
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