Electric Utility Industry Enterprises Risk Sensitivity & Financial Liquidity Decisions: The Case of Elektrownia Chorzów S.A.

17 Pages Posted: 16 Jul 2012 Last revised: 29 Jul 2012

See all articles by Grzegorz Michalski

Grzegorz Michalski

Uniwersytet Ekonomiczny we Wrocławiu - Faculty of Engineering and Economics

Date Written: July 15, 2012

Abstract

Financial liquidity in enterprise is maintained and managed for risk reduction purposes. Liquidity management should contribute to realization of the fundamental enterprise aim that is maximization of owner wealth. The enterprise owner wealth maximization strategy is executed with a focus on risk and uncertainty. The paper presents the consequences that can result from operating risk that is related to liquidity policy in the context of electric utility industry firms. An increase in the level of liquid assets in an enterprise increases both net working capital requirements and the costs of holding and managing financial liquidity. Both of these decrease the value of the firm. But not always it works in the same way, it depends on risk sensitivity of the business which differ between branches and individual representatives from each branch. Case study data presents and is an material for discussion about general model presented in first part of the paper. The relation between liquid levels and risk sensitivity is also illustrated by empirical data from electric utility industry empirical data.

Keywords: owner wealth, liquidity, cost of capital, enterprise value

JEL Classification: G32, G31, D24

Suggested Citation

Michalski, Grzegorz, Electric Utility Industry Enterprises Risk Sensitivity & Financial Liquidity Decisions: The Case of Elektrownia Chorzów S.A. (July 15, 2012). Available at SSRN: https://ssrn.com/abstract=2108535 or http://dx.doi.org/10.2139/ssrn.2108535

Grzegorz Michalski (Contact Author)

Uniwersytet Ekonomiczny we Wrocławiu - Faculty of Engineering and Economics ( email )

ul. Komandorska 118-120
Wroclaw, 53-345
Poland

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