On Risk Management Determinants: What Really Matters?

Georges Dionne () and Thouraya Triki

Cahiers de recherche from CIRPEE

Abstract: We investigate the determinants of the risk management decision for an original dataset of North American gold mining firms. We propose explanations based on the firm's financial characteristics, managerial risk aversion and internal corporate governance mechanisms. We develop a theoretical model in which the debt and the hedging decisions are made simultaneously. Our model suggests that more hedging does not always lead to a higher debt capacity when the firm holds a standard debt contract, while hedging is an increasing function of the firm's financial distress costs. We then test the predictions of our model. To estimate our system of simultaneous Tobit equations, we extend, to panel data, the minimum distance estimator proposed by Lee (1995). We obtain that financial distress costs, information asymmetry, separation between the posts of CEO and chairman of the board positions and managerial risk aversion are important determinants of the decision to hedge whereas the composition of the board of directors has no impact in such decision. Also, our results do not support the conclusion that firms hedge in order to increase their debt capacity which seems to confirm our model's prediction.

Keywords: Risk management determinants; corporate hedging; capital structure; managerial risk aversion; gold price; tax incentive; minimum distance estimator; panel data; Tobit; corporate governance. (search for similar items in EconPapers)
JEL-codes: D80 G10 (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-acc, nep-cfn and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://www.cirpee.org/fileadmin/documents/Cahiers_2004/CIRPEE04-17.pdf (application/pdf)

Related works:
Journal Article: On risk management determinants: what really matters? (2013)
Working Paper: On risk management determinants: What really matters? (2004)
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:lvl:lacicr:0417

Access Statistics for this paper

More papers in Cahiers de recherche from CIRPEE Contact information at EDIRC.
Bibliographic data for series maintained by Manuel Paradis ().