In a context of uncertain returns to investment, a firm may face increasing costs of borrowing and uncertain value of its internal finance. Froot, Scharfstein, and Stein (1993) develop a framework where the firm can hedge against the fluctuations of its cash flow, in order to better coordinate...

This study surveys theoretical models providing alternative rationales for corporate hedging.

Emerging markets in the last decade increased the stock of foreign reserves and simultaneously managed to raise GDP growth while leaving short term foreign debt and investment in net fixed capital nearly unchanged. This work builds a model able to derive these facts as the result of greater...

By trading derivatives on the financial markets, a firm can hedge against the fluctuations of its internal funds, in order to better coordinate investment and financing decisions. This work shows how optimal investment, debt and hedging strategy can be strongly dependent on the mechanism linking...

Using information on 443 UK non-financial companies, this work provides evidence supporting the hypothesis that managerial risk aversion is an incentive to deviate from the optimal hedging position. Conflicts of interest between shareholders and managers are at the centre of the decision about...

This study draws attention to some stylised facts suggesting that the rise of reserves in the Emerging countries is still partially unexplained. Emerging countries in the last decade seem to have reduced their exposure to the risk of short term foreign capital outflow, as they have increased GDP...