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Risk Management Theory: A comprehensive empirical assessment

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Author Info
Klimczak, Karol Marek

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Abstract

The aim of this paper is to develop a methodology for thorough empirical testing of major contemporary corporate risk management theories: financial theory, agency theory, stakeholder theory and new institutional economics. Unlike in previous research, the tests are organised around theories, rather than individual hypotheses. I used a number of tests for robustness and subjected hypotheses to repeated testing, cross-verifying results. Evidence of tests conducted on a sample of 150 companies listed at the Warsaw Stock Exchange in Poland, covering years from 2001 to 2005, clearly point to low empirical verification of all theories considered. However, I find evidence for some theoretical determinants: currency exposure, market-to-book value, IT and service sectors and size. In conclusion I suggest implications for future empirical and conceptual research.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 4241.

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Date of creation: 23 Jul 2007
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Handle: RePEc:pra:mprapa:4241

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Related research
Keywords: corporate risk management hedging derivatives CART

Find related papers by JEL classification:
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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References listed on IDEAS
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  1. Froot, Kenneth A & Scharfstein, David S & Stein, Jeremy C, 1993. " Risk Management: Coordinating Corporate Investment and Financing Policies," Journal of Finance, American Finance Association, vol. 48(5), pages 1629-58, December. [Downloadable!] (restricted)
    Other versions:
  2. Williamson, Oliver E, 1998. "The Institutions of Governance," American Economic Review, American Economic Association, vol. 88(2), pages 75-79, May. [Downloadable!] (restricted)
  3. John R. Graham & Daniel A. Rogers, 2002. "Do Firms Hedge in Response to Tax Incentives?," Journal of Finance, American Finance Association, vol. 57(2), pages 815-839, 04. [Downloadable!] (restricted)
  4. Nance, Deana R & Smith, Clifford W, Jr & Smithson, Charles W, 1993. " On the Determinants of Corporate Hedging," Journal of Finance, American Finance Association, vol. 48(1), pages 267-84, March. [Downloadable!] (restricted)
  5. Henk Berkman & Michael E. Bradbury, 1996. "Empirical Evidence on the Corporate Use of Derivatives," Financial Management, Financial Management Association, vol. 25(2), Summer.
  6. Allayannis, George & Weston, James P, 2001. "The Use of Foreign Currency Derivatives and Firm Market Value," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 14(1), pages 243-76.
  7. Guay, Wayne R., 1999. "The impact of derivatives on firm risk: An empirical examination of new derivative users1," Journal of Accounting and Economics, Elsevier, vol. 26(1-3), pages 319-351, January. [Downloadable!] (restricted)
  8. Michael Faulkender, 2005. "Hedging or Market Timing? Selecting the Interest Rate Exposure of Corporate Debt," Journal of Finance, American Finance Association, vol. 60(2), pages 931-962, 04. [Downloadable!] (restricted)
  9. Yanbo Jin & Philippe Jorion, 2006. "Firm Value and Hedging: Evidence from U.S. Oil and Gas Producers," Journal of Finance, American Finance Association, vol. 61(2), pages 893-919, 04. [Downloadable!] (restricted)
  10. Crabb, Peter R., 2002. "Multinational corporations and hedging exchange rate exposure," International Review of Economics & Finance, Elsevier, vol. 11(3), pages 299-314. [Downloadable!] (restricted)
  11. Jongmoo Jay Choi & Anita Mehra Prasad, 1995. "Exchange Risk Sensitivity and Its Determinants: A Firm and Industry Analysis of U.S. Multinationals," Financial Management, Financial Management Association, vol. 24(3), Fall.
  12. Tufano, Peter, 1996. " Who Manages Risk? An Empirical Examination of Risk Management Practices in the Gold Mining Industry," Journal of Finance, American Finance Association, vol. 51(4), pages 1097-1137, September. [Downloadable!] (restricted)
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