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

IFN Working Paper No. 843

28 Pages Posted: 24 Jun 2010 Last revised: 28 Jan 2013

See all articles by Niclas Andrén

Niclas Andrén

Lund University - Department of Business Administration

Håkan Jankensgård

Lund University

Lars Oxelheim

Research Institute of Industrial Economics (IFN); University of Agder; Knut Wicksell Center for Financial Studies, Lund University

Date Written: June 23, 2010

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

JEL Classification: E32, G32, G33, G34, M16, M21

Suggested Citation

Andrén, Niclas and Jankensgård, Håkan and Oxelheim, Lars, Exposure-Based Cash-Flow-At-Risk for Value-Creating Risk Management Under Macroeconomic Uncertainty (June 23, 2010). Fabich, M., L. Firnkorn, U. Hommel and E. Schellenberg (eds), The Strategic CFO – Creating Value in a Dynamic Market Environment. Heidelberg: Springer Verlag, Forthcoming, IFN Working Paper No. 843, Available at SSRN: https://ssrn.com/abstract=1629150 or http://dx.doi.org/10.2139/ssrn.1629150

Niclas Andrén (Contact Author)

Lund University - Department of Business Administration ( email )

Box 117
SE-221 00 Lund, S-220 07
Sweden

Håkan Jankensgård

Lund University ( email )

Box 117
Lund, SC Skane S221 00
Sweden

Lars Oxelheim

Research Institute of Industrial Economics (IFN) ( email )

P.O. Box 55665
SE-10215 Stockholm
Sweden
+46 8 665 4527 (Phone)
+46 8 665 4599 (Fax)

University of Agder ( email )

Serviceboks 422
N-4604 Kristiansand, VEST AGDER 4604
Norway

Knut Wicksell Center for Financial Studies, Lund University ( email )

P.O.Box 7080
S-220 07 Lund
Sweden
+46462228744 (Phone)

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