The Value of Corporate Risk Management
AbstractWe model and estimate the value of corporate risk management. We show how risk management can add value when revenues and costs are nonlinearly related to prices and estimate the model by regressing quarterly firm sales and costs on the second and higher moments of output and input prices. For a sample of 34 oil refiners, we find that hedging concave revenues and leaving concave costs exposed each represent between 2% and 3% of firm value. We validate our approach by regressing Tobin's "q" on the estimated value and level of risk management and find results consistent with the model. Copyright 2007 by The American Finance Association.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by American Finance Association in its journal The Journal of Finance.
Volume (Year): 62 (2007)
Issue (Month): 3 (06)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Gay, Gerald D. & Lin, Chen-Miao & Smith, Stephen D., 2011. "Corporate derivatives use and the cost of equity," Journal of Banking & Finance, Elsevier, vol. 35(6), pages 1491-1506, June.
- Aretz, Kevin & Bartram, Söhnke M., 2009.
"Corporate Hedging and Shareholder Value,"
14088, University Library of Munich, Germany.
- Allayannis, George & Lel, Ugur & Miller, Darius P., 2012. "The use of foreign currency derivatives, corporate governance, and firm value around the world," Journal of International Economics, Elsevier, vol. 87(1), pages 65-79.
- Frestad, Dennis, 2010. "Convex costs and the hedging paradox," Journal of Corporate Finance, Elsevier, vol. 16(2), pages 236-242, April.
- Kuersten, Wolfgang & Linde, Rainer, 2011. "Corporate hedging versus risk-shifting in financially constrained firms: The time-horizon matters!," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 502-525, June.
- Rampini, Adriano A. & Sufi, Amir & Viswanathan, S., 2014. "Dynamic risk management," Journal of Financial Economics, Elsevier, vol. 111(2), pages 271-296.
- Cornaggia, Jess, 2013. "Does risk management matter? Evidence from the U.S. agricultural industry," Journal of Financial Economics, Elsevier, vol. 109(2), pages 419-440.
- Adam, Tim, 2009. "Capital expenditures, financial constraints, and the use of options," Journal of Financial Economics, Elsevier, vol. 92(2), pages 238-251, May.
- BOYER, Marcel & BOYER, Martin M. & GARCIA, René, 2010. "The Alleviation of Coordination Problems through Financial Risk Management," Cahiers de recherche 06-2010, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.