This paper deals with the joint influence of a firm's hedging and leverage decisions on shareholder wealth. We extend the traditional approach to optimal capital structure, which trades off the market values of bankruptcy costs and corporate taxes, by giving management the opportunity to hedge...

This paper develops a theory of a firm's hedging decision with endogenous leverage. In contrast to previous models in the literature, our framework is based on less restrictive distributional assumptions and allows a closed-form analytical solution to the joint optimization problem. Using...

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...