Risk, the Limits of Financial Risk Management, and Corporate Resilience

42 Pages Posted: 22 Aug 2024

See all articles by René M. Stulz

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Date Written: August 21, 2024

Abstract

Existing evidence shows convincingly that expected cash flows of non-financial firms can be negatively affected by their total risk, so that non-financial firms can create shareholder wealth by managing their total risk. After reviewing theories that demonstrate links between firm value and total risk, I examine how financial risk management is used to manage firm total risk. I conclude from the evidence that the use of financial risk management is mostly limited to near-term risk in non-financial firms. I offer explanations for this limited role of financial risk management. I argue that the limitations of financial risk management make it important for firms to also focus on resilience and call for more research on the costs and benefits of resilience.

Keywords: Risk, risk management, derivatives, hedging, resilience

JEL Classification: G32, G23

Suggested Citation

Stulz, Rene M., Risk, the Limits of Financial Risk Management, and Corporate Resilience (August 21, 2024). Fisher College of Business WP No. 2024-03-015 and Charles A. Dice Center WP No. 2024-15, European Corporate Governance Institute – Finance Working Paper No. 1008/2024, HKU Jockey Club Enterprise Sustainability Global Research Institute - Archive, Available at SSRN: https://ssrn.com/abstract=4932973 or http://dx.doi.org/10.2139/ssrn.4932973

Rene M. Stulz (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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European Corporate Governance Institute (ECGI)

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1000 Brussels
Belgium

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