In this paper, a review of theoretical literature of models providing rational of corporate hedging is done and also addresses the corporate finance issues such as financing and investment. As per definition, hedging is either an in surance contract or an activity reducing the correlation between value and random variable linked with the derivative purchase. It is found that, when considering the modern finance theory after relaxing the assumptions made by Modigliani & Miller, the corporate hedging reduces several costs such as agency cost, distress cost and cost of debt. Also, hedging models are explained reducing the adverse selection problem. An integrated approach based models are also present in the review.
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