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Corporate Risk Management as a Lever for Shareholder Value Creation

  • Sohnke M. Bartram

    (Maastricht University, LIFE)

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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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
Contact details of provider: Web page: http://128.118.178.162

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  1. Alexius, Annika, 1996. "Long Run Real Exchange Rates - A Cointegration Analysis," SSE/EFI Working Paper Series in Economics and Finance 119, Stockholm School of Economics.
  2. 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.
  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. 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.
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