This paper focuses on the simultaneity relationship between hedging through forwards, futures, swaps and capital structure for non-financial Malaysian firms. The determinants of hedging and capital structure are ascertained and a two-stage regression analysis using pooled data of firms listed on Malaysian Stock Exchange, Bursa Malaysia, from 2001-2005 is performed.

The analysis shows that simultaneity relationship exists between hedging and capital structure. Hedging reduces financial distress cost and increases firm's debt capacity. Since there are tax incentives in debt financing, firms will be induced to borrow more to take advantage of the potential tax benefits. However, increase in debt will further increase the likelihood of financial distress, thus firms will hedge more to mitigate the increased risks.

The Relationship Between Hedging Through Forwards, Corporate Capital Structure, MalaysianStock Exchange markets, Global economy, Multimedia Super Corridor, MSC, Hedge fund, Foreign Currency Derivatives, Financial Management, Financial and Quantitative Analysis, Corporate Financial Managers.