Corporate Risk Management as a Lever for Shareholder Value Creation

Söhnke M. Bartram

Finance from EconWPA

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.

Keywords: risk management; agency cost; hedging; shareholder value; taxes; transaction cost; derivatives (search for similar items in EconPapers)
JEL-codes: G3 F4 F3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc, nep-fin and nep-ifn
Date: 2001-08-10, Revised 2001-08-10
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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Working Paper: Corporate Risk Management as a Lever for Shareholder Value Creation (2000)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:0108002

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