Corporate risk management and investment decisions

Xun Li and Zhenyu Wu

Journal of Risk Finance, 2009, vol. 10, issue 2, 155-168

Abstract: Purpose - Corporate risk management is one of the critical concerns of managers when they make investment allocation decisions among multiple projects. The purpose of this paper is to address corporate investment issues illustrated by target‐beating in capital budgeting, and further discuss their applications in financial management, especially in venture capital finance. Design/methodology/approach - Value‐at‐risk, a typical down‐side risk measure which is considered more appropriate for economic agents, is applied to the analysis. Probability theory and optimal control methodologies are used to derive analytical solutions. Findings - By maximizing the probability of beating a pre‐determined target, an analytical optimal corporate investment allocation strategy is presented, and the corresponding probability and expected earliest time of success derived. Research limitations/implications - Various types of utility functions of economic agents and other dynamic downside risk measures can be considered in future research along this line. Practical implications - This paper paves the road for applications of continuous‐time downside risk in making corporate investment decisions, especially in the field of new venture finance. Originality/value - As one of the early studies investigating optimal investment decisions in continuous‐time downside risk‐based capital budgeting system, this project sheds light on corporate risk management, and provides risk‐averse decision makers with an effective tool.

Keywords: Corporate strategy; Risk management; Investment appraisal; Capital budgeting (search for similar items in EconPapers)
Date: 2009
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:jrfpps:15265940910938233

DOI: 10.1108/15265940910938233

Access Statistics for this article

Journal of Risk Finance is currently edited by Nawazish Mirza

More articles in Journal of Risk Finance from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().