Hedging and Coordinated Risk Management: Evidence from Thrift Conversions

Posted: 3 Jul 1998

See all articles by Catherine M. Schrand

Catherine M. Schrand

University of Pennsylvania - Accounting Department

Haluk Unal

University of Maryland - Robert H. Smith School of Business

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Abstract

We provide an explanation for hedging as a means of allocating rather than reducing risk. We argue that when increases in total risk are costly, firms optimally allocate risk by reducing (increasing) exposure to risks that provide zero (positive) economic rents. Our evidence shows that mutual thrifts which convert to stock institutions increase total risk following conversion, consistent with their increased abilities and incentives for risk taking. They achieve this increase by hedging interest-rate risk and increasing credit risk. We provide some evidence that risk management activities are related to growth capacity and management compensation structure attained at conversion.

JEL Classification: G21, G32

Suggested Citation

Schrand, Catherine M. and Unal, Haluk, Hedging and Coordinated Risk Management: Evidence from Thrift Conversions. Available at SSRN: https://ssrn.com/abstract=100316

Catherine M. Schrand (Contact Author)

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
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215-573-2054 (Fax)

Haluk Unal

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States
301-405-2256 (Phone)
301-405 0359 (Fax)

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