Markus HangFirm Value Effects of Capital Structure and Corporate Hedging Decisions

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In the center of this work is the nexus among corporate capital structure decisions, corporate hedging decisions, and firm value. Although, empirical corporate finance literature is rapidly growing, especially in capital structure and corporate hedging research—that are among the most central topics of corporate finance research—confusion and inconclusiveness of empirical results become inherent parts of these strands of research. Hence, the first aim of this work is to provide aggregated results for the core drivers of capital structure decisions as well as the core drivers of corporate hedging decisions across prior empirical literature and to explain the large variation among the existing results by means of meta-analysis. Second, this work offers answers to the questions, how capital structure and hedging decisions interact and via which channels they add value to the firm. Finally, this work addresses several research gaps identified in literature by meta-analyses, while analyzing the effects of electricity output hedging of electric utility firms.

This work is highly relevant for scientific as well as practical purposes. On the one hand, for further usage in corporate finance research, the summary of empirical and theoretical studies in the field of capital structure and corporate hedging decisions provides a good overview of the associated research fields. Especially, the description of central theories and the collection of prior empirical studies serve as a good introduction to these research fields and help to identify the main research focuses and research gaps. Moreover, the interactions between capital structure and corporate hedging decisions as well as their impact on firm value are addressed, which further develops an integrated theoretical framework incorporating these relations. Additionally, the explicit distinction between input and output hedging is examined in the context of electric utility. This analysis especially reveals differences in the impact on hedging decisions, risk exposures, financing and investment decisions, and firm values. Furthermore, this work explicitly describes the application of meta-analysis in financial research for the first time. In detail, the methodologies of univariate meta-analysis, meta-regression analysis, and meta-analytic structural equation modeling are discussed considering the special circumstances in financial research. On the other hand, practitioners might benefit from knowledge about the main drivers and implications of capital structure and hedging decisions, especially in terms of firm value effects. Besides, the results reveal, how these effects differ for various company surroundings in order to derive firm-specific recommendations for action.

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