Financial risk management and enterprise value creation

Peng‐fei Wang, Shi Li and Jian Zhou

Nankai Business Review International, 2010, vol. 1, issue 1, 5-19

Abstract: Purpose - The purpose of this paper is to explore whether financial risk management (FRM) can improve enterprise value in China's current economic environment. Design/methodology/approach - A theoretical model is constructed which decomposes firms by different combinations expressed by cash flow and risk scale. Then, regression testing is conducted, taking the non‐ferrous metal industry in Shanghai and Shenzhen Stock Exchanges (2002‐2008) as the sample, and using the fixed effects model. Findings - The results support the hypothesis that risk management can raise enterprise value. It is also found that risk management behavior has different representations among firms with different characteristics. Originality/value - This paper has modified Boyer's mean‐variance model and then testified to the effectiveness of FRM. It also explores the influence of enterprise characteristics on the efficiency of risk management, providing some theoretic support for China's enterprises, which could borrow ideas from successful experience.

Keywords: China; Enterprise economics; Financial risk; Risk management; Derivative markets; Hedging (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:eme:nbripp:v:1:y:2010:i:1:p:5-19

DOI: 10.1108/20408741011032836

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