Exposure-Based Cash-Flow-At-Risk for Value-Creating Risk Management Under Macroeconomic Uncertainty
Fabich, M., L. Firnkorn, U. Hommel and E. Schellenberg (eds), The Strategic CFO – Creating Value in a Dynamic Market Environment. Heidelberg: Springer Verlag, Forthcoming
28 Pages Posted: 24 Jun 2010 Last revised: 28 Jan 2013
Date Written: June 23, 2010
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
JEL Classification: E32, G32, G33, G34, M16, M21
Suggested Citation: Suggested Citation