Agency Costs of Corporate Risk Management
Financial Management, Volume 27, Number 1, Spring 1998
Posted: 20 Mar 1998
This paper discusses a potential cost to corporate risk management strategies that are based on cash-flow hedging. Cash-flow hedging strategies allow firms to avoid the deadweight costs of external financing by setting their internal cash flows equal their investment needs. In the presence of agency conflicts between managers and shareholders, these hedging strategies can be used to reduce shareholder wealth, insofar as they remove the valuable discipline that obtaining new external financing imposes on managers.
JEL Classification: G31, G32
Suggested Citation: Suggested Citation