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Exposure-Based Cash-Flow-at-Risk for Value-Creating Risk Management under Macroeconomic Uncertainty

Author

Listed:
  • Andrén, Niclas

    (Department of Business Administration)

  • Jankensgård, Håkan

    (Department of Business Administration)

  • Oxelheim, Lars

    (Research Institute of Industrial Economics (IFN))

Abstract

A strategically minded CFO will realize that strategic corporate risk management is about finding the right balance between risk prevention and proactive value generation. Efficient risk and performance management requires adequate assessment of risk and risk exposures on the one hand and performance on the other. Properly designed, a risk measure should provide information on to what extend the firm's performance is at risk, what is causing that risk, the relative importance of non-value-adding and value-adding risk, and the possibilities to use risk management to reduce total risk. In this chapter, we present an approach – exposure-based cash-flow-at-risk – to calculating a firm's downside risk conditional on the firm's exposure to non-value-adding macroeconomic and market risk and to analyzing corporate performance adjusted for the impact of non-value-adding risk.

Suggested Citation

  • Andrén, Niclas & Jankensgård, Håkan & Oxelheim, Lars, 2010. "Exposure-Based Cash-Flow-at-Risk for Value-Creating Risk Management under Macroeconomic Uncertainty," Working Paper Series 843, Research Institute of Industrial Economics.
  • Handle: RePEc:hhs:iuiwop:0843
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    More about this item

    Keywords

    Cash-flow-at risk; Value at risk; Risk management; Value creation; Total risk;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M16 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - International Business Administration
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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