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Exposure-Based Cash-Flow-at-Risk for Value-Creating Risk Management under Macroeconomic Uncertainty

Niclas Andrén (), Håkan Jankensgård and Lars Oxelheim
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Håkan Jankensgård: Department of Business Administration, Postal: Lund University, Sweden

No 843, Working Paper Series from Research Institute of Industrial Economics

Abstract: A strategically minded CFO will realize that strategic corporate risk management is about finding the right balance between risk prevention and proactive value generation. Efficient risk and performance management requires adequate assessment of risk and risk exposures on the one hand and performance on the other. Properly designed, a risk measure should provide information on to what extend the firm's performance is at risk, what is causing that risk, the relative importance of non-value-adding and value-adding risk, and the possibilities to use risk management to reduce total risk. In this chapter, we present an approach – exposure-based cash-flow-at-risk – to calculating a firm's downside risk conditional on the firm's exposure to non-value-adding macroeconomic and market risk and to analyzing corporate performance adjusted for the impact of non-value-adding risk.

Keywords: Cash-flow-at risk; Value at risk; Risk management; Value creation; Total risk (search for similar items in EconPapers)
JEL-codes: E32 G32 G33 G34 M16 M21 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2010-06-21
New Economics Papers: this item is included in nep-ban, nep-bec and nep-rmg
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