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Corporate Risk Management And Value Creation

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  • Danijela Milos Sprcic
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    Abstract

    This paper explores relationship between risk management activity and company's value. The main purpose of this paper is to get a deeper insight into the research problem, as well as to reach better comprehension of a relationship between risk management and value creation at the corporate level. The paper is aiming to (1) explain the clash between theory and practice by presenting benefits of risk management; (2) present results of empirical research on corporate risk management rationales in large non-financial Croatian companies; (3) explore how risk management can influence company's value and its drivers. The literature survey has shown that risk management can enhance company's value by decreasing costs related to financial difficulties, agency cost of debt, taxes, and costs of external financing. The evidence based on the multivariate empirical relations between the decision to hedge in Croatian non-financial companies and financial distress costs, agency costs, costly external financing, and taxes supports tested hypotheses related to the investment expenditures to assets ratio and total debt to assets ratio. Therefore, it can be concluded that companies that are more leveraged and have more investment opportunities have more incentives to manage corporate risk. By using Risk adjusted value approach, paper has shown that efficient risk management can influence company value drivers and positively affect overall enterprise value.

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    Bibliographic Info

    Article provided by Economic Laboratory for Transition Research (ELIT) in its journal Montenegrin Journal of Economics.

    Volume (Year): 9 (2013)
    Issue (Month): 2 ()
    Pages: 17-26

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    Handle: RePEc:mje:mjejnl:v:9:y:2013:i:2:p:17-26

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    Web page: http://www.mnje.com

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    18. Geczy, Christopher & Minton, Bernadette A & Schrand, Catherine, 1997. " Why Firms Use Currency Derivatives," Journal of Finance, American Finance Association, vol. 52(4), pages 1323-54, September.
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