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Corporate Risk Management as a Lever for Shareholder Value Creation

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Author Info
Sohnke M. Bartram (Maastricht University, LIFE)

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Abstract

Firm value is influenced in many direct and indirect ways by financial risks, which consist of unexpected changes of foreign exchange rates, interest rates and commodity prices. The fact that a significant number of corporations are committing resources to risk management activi-ties is, however, only an indication of the potential of corporate risk management to increase firm value. This paper presents a comprehensive review of positive theories and their empiri-cal evidence regarding the contribution of corporate risk management to shareholder value. It is argued that because of realistic capital market imperfections, such as agency costs, transac-tion costs, taxes, and increasing costs of external financing, risk management at the firm level (as opposed to risk management by stock owners) represents a means to increase firm value to the benefit of the shareholders.

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File URL: http://129.3.20.41/eps/fin/papers/0108/0108002.pdf
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Publisher Info
Paper provided by EconWPA in its series Finance with number 0108002.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 84 pages
Date of creation: 10 Aug 2001
Date of revision: 10 Aug 2001
Handle: RePEc:wpa:wuwpfi:0108002

Note: Type of Document - Acrobat PDF; prepared on IBM PC; pages: 84 ; figures: included. Financial Markets, Institutions and Instruments, Vol. 9, Iss. 5, December 2000, 279-324
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Web page: http://129.3.20.41

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Related research
Keywords: risk management; agency cost; hedging; shareholder value; taxes; transaction cost; derivatives;

Other versions of this item:

Find related papers by JEL classification:
G3 - Financial Economics - - Corporate Finance and Governance
F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
F3 - International Economics - - International Finance

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References listed on IDEAS
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.:
  1. Alexius, Annika, 1996. "Long Run Real Exchange Rates - A Cointegration Analysis," Working Paper Series in Economics and Finance 119, Stockholm School of Economics.
  2. Abuaf, Niso & Jorion, Philippe, 1990. " Purchasing Power Parity in the Long Run," Journal of Finance, American Finance Association, vol. 45(1), pages 157-74, March. [Downloadable!] (restricted)
  3. Adler, Michael & Lehmann, Bruce, 1983. " Deviations from Purchasing Power Parity in the Long Run," Journal of Finance, American Finance Association, vol. 38(5), pages 1471-87, December. [Downloadable!] (restricted)
  4. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, 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.)

  1. Aleš S. Berk & Jožko Peterlin & Mitja Èok, 2009. "Corporate Risk Management in Slovenian Firms," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 7(3), pages 281-306. [Downloadable!]
  2. Constantin Mellios, 2001. "La gestion des risques financiers par les entreprises : explications théoriques versus études théoriques," Working Papers 2001-9, Laboratoire Orléanais de Gestion - université d'Orléans. [Downloadable!]
  3. Bartram, Söhnke M. & Brown, Gregory W. & Conrad, Jennifer, 2006. "The Effects of Derivatives on Firm Risk and Value," MPRA Paper 9831, University Library of Munich, Germany, revised 24 Jul 2008. [Downloadable!]
  4. Carretta, Alessandro & Farina, Vincenzo & Fiordelisi, Franco & Schwizer, Paola, 2006. "Corporate culture and shareholder value in banking industry," MPRA Paper 8304, University Library of Munich, Germany. [Downloadable!]
  5. Aretz, Kevin & Bartram, Söhnke M., 2009. "Corporate Hedging and Shareholder Value," MPRA Paper 14088, University Library of Munich, Germany. [Downloadable!]
  6. José Eduardo Gómez González & Carlos Eduardo Léon Gómez & Karen Juliet Leiton Rodríguez, . "Does the Use of Foreign Currency Derivatives Affect Colombian Firms’ Market Value?," Borradores de Economia 562, Banco de la Republica de Colombia. [Downloadable!]
    Other versions:
  7. Bartram, Söhnke M., 2004. "The Use of Options in Corporate Risk Management," MPRA Paper 6663, University Library of Munich, Germany. [Downloadable!]
  8. Kapitsinas, Spyridon, 2008. "The Impact of Derivatives Usage on Firm Value: Evidence from Greece," MPRA Paper 10947, University Library of Munich, Germany. [Downloadable!]
  9. Kapitsinas, Spyridon, 2008. "Derivatives Usage in Risk Management by Non-Financial Firms: Evidence from Greece," MPRA Paper 10945, University Library of Munich, Germany. [Downloadable!]
  10. Moguillansky, Graciela, 2002. "Non-Financial Corporate Risk Management and Exchange Rate Volatility in Latin America," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  11. Bartram, Söhnke M. & Bodnar, Gordon, 2005. "The Exchange Rate Exposure Puzzle," MPRA Paper 6482, University Library of Munich, Germany. [Downloadable!]
  12. Sohnke M. Bartram & Gregory W. Brown & Frank R. Fehle, 2003. "International Evidence on Financial Derivatives Usage," Finance 0307003, EconWPA, revised 24 Jul 2003. [Downloadable!]
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