Hedging PolİCİEs
An important charcteristic of widely held corporations is that, their owners are stockholders or bondholders who can hold diversified portfolios to secure themselves for future economic risks. So tat, most of the litreture focusing on the risk averse producers to explain hedging practises of firms are not relevant for widely held companies.
Hedging policy affects the value of the firm throuh contacting costs, taxes or the impact of hedging policy on its decisions. According to Modigliani and Miller [1958], when operations and investments are not affected, when there is no taxes or cost of financial distress, the value of the firm is unaffected by its financial policy.
According to Mayers/Smith -1982, Smith/Stulz-1985, hedging can increase the value of the firm if it faces a convex tax function. İf the marginal tax rates are the increasing function of the firms pre-tax value, then as long as the cost of the hedging is not too high, firms can increase their expected......
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Approximate Word Count: 1673
Approximate Pages: 7 (250 words per double-spaced page)
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