Financial and Operational Risk Management: Inventory Effects in the Gold Mining Industry

Panos Markou and Daniel Corsten

Production and Operations Management, 2021, vol. 30, issue 12, 4635-4655

Abstract: Financial and operational risk management are central concepts at the intersection of finance, operations, and commodity risk management. Yet, empirical evidence on their effects on inventory is lacking. We use a fine‐grained data set comprising the financial and operational risk management decisions of gold miners from 2003 to 2011 to empirically assess the effects of risk management on inventory. Faced with volatile gold prices, miners may manage (output) risk financially by committing to sell future gold production and lock in prices. They may also manage (input) costs operationally by varying the quality of ore they extract and process, thereby altering the costs they incur and influencing inventory holdings. In addition to affecting profitability, we show that these two risk management strategies have implications for inventory holdings. We find that a one‐standard deviation increase in financial risk management (FRM) is associated with an 14.3% decrease in inventory, as FRM decreases the option value of delaying processing inventory. On the other hand, a one‐standard deviation increase in operational risk management (ORM) is associated with a 3.5% increase in inventory. We also find evidence that, in this context, FRM and ORM could be viewed as complements.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://doi.org/10.1111/poms.13448

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:bla:popmgt:v:30:y:2021:i:12:p:4635-4655

Ordering information: This journal article can be ordered from
http://onlinelibrary ... 1111/(ISSN)1937-5956

Access Statistics for this article

Production and Operations Management is currently edited by Kalyan Singhal

More articles in Production and Operations Management from Production and Operations Management Society
Bibliographic data for series maintained by Wiley Content Delivery ().