We show how target debt ratios in book value terms applied to new investment can improve alignment of investment incentives in firms with risky debt outstanding and asymmetric information. While wealth transfer from both agency conflicts can reduce the value of existing equity, new debt offsets...

Purpose: This paper aims to develop hedging strategies using both futures and forward contracts and issuing risky debt when financially constrained firms are forced to operate in long horizon. Design/methodology/approach: The authors present a model for developing hedging strategies using both...

We present a model for developing hedging strategies using both futures and forward contracts and issuing risky debt. A financially constrained firm with limited cash balance must hedge its liquidity with both futures and forward contracts and issue risky debt to support its long-term...