A Guide to Corporate Risk Management
35 Pages Posted: 13 Aug 2014
Date Written: August 12, 2014
A number of theories have been proposed to explain why firms hedge. Unfortunately, these theories are hard to test: While we might observe the hedges, it is hard to answer the question of “why” hedging occurs. Our paper addresses the “why” by directly questioning the managers that make the risk management decisions. Our results present a fresh, inside view of corporate risk management. Rather than hedging being conducted solely by “firms”, our results suggest that personal risk aversion in combination with other executive traits plays a key role in whether a company hedges. As such, our results suggest an important deficiency in many modern theories of risk management which ignore the role of the individual manager. These presentation slides are based on our paper "A View Inside Corporate Risk Management". The research paper is available at http://ssrn.com/abstract=2438884.
Keywords: Risk Management, Hedging, Managerial Risk Aversion, Behavioral Finance, Manager fixed-effects, Interest rate risk, Credit risk, Commodity risk, Foreign exchange risk.
JEL Classification: G02, G30, G32
Suggested Citation: Suggested Citation