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Corporate Risk Management as a Lever for Shareholder Value Creation

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  • Sohnke M. Bartram

    (Maastricht University, LIFE)

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://128.118.178.162/eps/fin/papers/0108/0108002.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Finance with number 0108002.

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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://128.118.178.162

Related research

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

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References

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  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. 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.
  3. 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.
  4. 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.
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Citations

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Cited by:
  1. Söhnke M. Bartram & Gregory W. Brown & Frank R. Fehle, 2009. "International Evidence on Financial Derivatives Usage," Financial Management, Financial Management Association International, vol. 38(1), pages 185-206, 03.
  2. Bartram, Söhnke M. & Bodnar, Gordon, 2005. "The Exchange Rate Exposure Puzzle," MPRA Paper 6482, University Library of Munich, Germany.
  3. Constantin Mellios, 2003. "La gestion des risques financiers par les entreprises : explications théoriques versus études empiriques," Revue d'Économie Financière, Programme National Persée, vol. 72(3), pages 243-264.
  4. Bartram, Sohnke M. & Dufey, Gunter & Frenkel, Michael R., 2005. "A primer on the exposure of non-financial corporations to foreign exchange rate risk," Journal of Multinational Financial Management, Elsevier, vol. 15(4-5), pages 394-413, October.
  5. Kevin Aretz & Söhnke M. Bartram, 2010. "Corporate Hedging And Shareholder Value," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 33(4), pages 317-371, December.
  6. :Sohnke Bartram & Gregory Brown & Jennifer S. Conrad, 2009. "The Effects of Derivatives on Firm Risk Value," Working Papers wpn09-01, Warwick Business School, Finance Group.
  7. Monda, Barbara & Giorgino, Marco & Modolin, Ileana, 2013. "Rationales for Corporate Risk Management - A Critical Literature Review," MPRA Paper 45420, University Library of Munich, Germany.
  8. José Eduardo Gómez González & Carlos Eduardo León Rincón & Karen Julieth Leiton Rodríguez, 2009. "Does the Use of Foreign Currency Derivatives Affect Colombian Firms´ Market Value?," BORRADORES DE ECONOMIA 005514, BANCO DE LA REPÚBLICA.
  9. 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.
  10. Hong, Gwangheon & Sarkar, Sudipto, 2008. "Commodity betas with mean reverting output prices," Journal of Banking & Finance, Elsevier, vol. 32(7), pages 1286-1296, July.
  11. Ales S. Berk & Jozko Peterlin & Mitja Cok, 2009. "Corporate Risk Management in Slovenian Firms," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 7(3), pages 281-306.
  12. 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.
  13. Bartram, Söhnke M., 2004. "The Use of Options in Corporate Risk Management," MPRA Paper 6663, University Library of Munich, Germany.
  14. Danijela Milos Sprcic, 2013. "Corporate Risk Management And Value Creation," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 9(2), pages 17-26.
  15. Kapitsinas, Spyridon, 2008. "The Impact of Derivatives Usage on Firm Value: Evidence from Greece," MPRA Paper 10947, University Library of Munich, Germany.
  16. Kapitsinas, Spyridon, 2008. "Derivatives Usage in Risk Management by Non-Financial Firms: Evidence from Greece," MPRA Paper 10945, University Library of Munich, Germany.
  17. 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.

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