A View Inside Corporate Risk Management

Gordon Bodnar, Erasmo Giambona (), John R. Graham () and Campbell R. Harvey ()
Additional contact information
John R. Graham: Duke University, Durham, North Carolina 27708; National Bureau of Economic Research, Cambridge, Massachusetts 02912
Campbell R. Harvey: Duke University, Durham, North Carolina 27708; National Bureau of Economic Research, Cambridge, Massachusetts 02912

Management Science, 2019, vol. 65, issue 11, 5001-5026

Abstract: Why do firms manage risk? According to various theories, firms hedge to mitigate credit rationing, to alleviate information asymmetry, and to reduce the risk of financial distress. However, empirical support for these theories is mixed. Our paper addresses the “why” by directly asking the managers that make risk management decisions. Our results suggest that personal risk aversion in combination with other executive traits plays a key role in hedging. Our analysis also indicates that risk-averse executives are more likely to rely on (more conservative) fat-tailed distributions to estimate risk exposure. While most theories of risk management ignore the human dimension, our results suggest that managerial traits play an important role.

Keywords: risk management; hedging; managerial risk aversion; behavioral finance; manager fixed effects; interest rate risk; credit risk; commodity risk; foreign exchange risk (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
https://doi.org/10.1287/mnsc.2018.3081 (application/pdf)

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:inm:ormnsc:v:65:y:2019:i:11:p:5001-5026

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().