Mining Industry Enterprises Risk Sensitivity & Financial Liquidity Decisions: The Case of Kghm Polska Miedź S.A.

11 Pages Posted: 16 Jul 2012 Last revised: 24 Sep 2012

See all articles by Grzegorz Michalski

Grzegorz Michalski

Uniwersytet Ekonomiczny we Wrocławiu - Faculty of Engineering and Economics

Date Written: July 15, 2012

Abstract

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. Financial liquidity in enterprise is maintained and managed for risk reduction purposes. The paper presents the consequences that can result from operating risk that is related to liquidity policy in the context of mining 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 the paper. The relation between liquid levels and risk sensitivity is also illustrated by empirical data from mining industry empirical data.

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

JEL Classification: G32, G31, D24

Suggested Citation

Michalski, Grzegorz, Mining Industry Enterprises Risk Sensitivity & Financial Liquidity Decisions: The Case of Kghm Polska Miedź S.A. (July 15, 2012). Available at SSRN: https://ssrn.com/abstract=2108536 or http://dx.doi.org/10.2139/ssrn.2108536

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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