Hedging and Coordinated Risk Management: Evidence from Thrift Conversions

96-05

Posted: 3 Jul 1998

See all articles by Catherine M. Schrand

Catherine M. Schrand

University of Pennsylvania - Accounting Department

Haluk Unal

University of Maryland - Robert H. Smith School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: December 1995

Abstract

We provide an explanation for hedging as a means of allocating rather than reducing risk. We argue that firms facing a total risk constraint optimally allocate risk by reducing (increasing) exposure to risks providing zero (positive) economic rents. Our evidence suggests that mutual thrifts which convert to stock institutions reduce interest-rate risk through improved balance sheet maturity matching and increased derivatives use at the time of conversion. This interest-rate risk reduction is followed by slower growth in credit risk. Post-conversion, risk management activities are significantly related to growth capacity and management compensation structure attained at conversion.

JEL Classification: G21, G32

Suggested Citation

Schrand, Catherine M. and Unal, Haluk, Hedging and Coordinated Risk Management: Evidence from Thrift Conversions (December 1995). 96-05, Available at SSRN: https://ssrn.com/abstract=7211

Catherine M. Schrand (Contact Author)

University of Pennsylvania - Accounting Department ( email )

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Haluk Unal

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States
301-405-2256 (Phone)
301-405 0359 (Fax)

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