Klimczak, Karol Marek (2007): Risk Management Theory: A comprehensive empirical assessment.
Download (246Kb) | Preview
The aim of this paper is to develop a methodology for thorough empirical testing of major contemporary corporate risk management theories: financial theory, agency theory, stakeholder theory and new institutional economics. Unlike in previous research, the tests are organised around theories, rather than individual hypotheses. I used a number of tests for robustness and subjected hypotheses to repeated testing, cross-verifying results. Evidence of tests conducted on a sample of 150 companies listed at the Warsaw Stock Exchange in Poland, covering years from 2001 to 2005, clearly point to low empirical verification of all theories considered. However, I find evidence for some theoretical determinants: currency exposure, market-to-book value, IT and service sectors and size. In conclusion I suggest implications for future empirical and conceptual research.
|Item Type:||MPRA Paper|
|Institution:||Leon Kozminski Academy of Enterpreneurship and Management|
|Original Title:||Risk Management Theory: A comprehensive empirical assessment|
|Keywords:||corporate risk management; hedging; derivatives; CART|
|Subjects:||G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill|
|Depositing User:||Karol Marek Klimczak|
|Date Deposited:||24. Jul 2007|
|Last Modified:||11. Feb 2013 20:16|
Allayannis, G., James, W. (2001), “The use of foreign currency derivatives and firm market value”, Review of Financial Studies, Vol. 14, pp. 243–276. Berkman, H, Bradbury, M. E. (1996), “Empirical Evidence on the Corporate use of Derivatives”, Financial Management, Vol. 25, No. 2, pp. 5-14. Bradley, K., Moles P. (2001), “The effects of exchange rate movements on non-financial UK firms”, International Business Review, Vol. 10, pp. 51-69. Breiman, L., Friedman, J., Olshen, R., Stone, C.J. (1984), Classification and Regression Trees, Wadsworth. Carter, D., Daniel, R., Betty, S. (2006), “Does fuel hedging make economic sense? The case of the U.S. airline industry”, Financial Management, Vol. 35, No. 1, pp. 53-86. Chen, C. C., So, R. W. (2002), “Exchange rate variability and the riskiness of US multinational firms: evidence form the Asian financial turmoil”, Journal of Multinational Financial Management, Vol. 12, pp. 411-428. Choi, J. J., Prasad, A. M. (1995), “Exchange Risk Sensitivity and Its Determinants: A Firm and Industry Analysis of U.S. Multinationals”, Financial Management, Vol. 24, No. 3, pp. 77-88. Cornell, B., Shapiro, A. C. (1987), “Corporate Stakeholders and Corporate Finance”, Financial Management, Vol. 16, pp. 5-14. Crabb, P. R. (2002), “Multinational Corporations and Hedging Exchange Rate Exposure”, International Review of Economics and Finance, Vol. 11, pp. 299-314. Davies, D., Eckberg, C., Marshall, A. (2006), “The Determinants of Norwegian Exporters' Foreign Exchange Risk Management”, The European Journal of Finance, Vol. 12, No. 3, pp. 217-240. Faff, R., Nguyen, H. (2002), “On The Determinants of Derivative Usage by Australian Companies”, Australian Journal of Management, Vol. 27, No. 1, pp. 1-24. Faulkender, M. (2005), “Hedging or Market Timing? Selecting the Interest Rate Exposure of Corporate Debt”, The Journal of Finance, Vol. 60, No. 2, pp. 931-963. Fite, D., Pfleiderer, P. (1995), “Should Firms Use Derivatives to Manage Risk?”, in Beaver W., Parker, G. (Ed.), Risk Management: Problems and Solutions, McGraw-Hill, New York, pp. 61-76. Froot, K. A., Scharfstein, D. S., Stein, J. C. (1993), “Risk Management: Coordinating Corporate Investment and Financing Policies”, The Journal of finance, Vol. 48, No. 5, pp. 1629-1658. Freeman, R. E. (1984), Strategic management: A stakeholder approach, Prentice-Hall, Englewood Cliffs, NJ. Geczy, C., Minton, B.A., Schrand, C. (1997), “Why Firms Use Derivatives”, The Journal of Finance, Vol. 52, No. 4, pp. 1323-1354. Graham, J. R., Rogers, D. A. (2002), “Do firms Hedge in Response to Tax Incentives?”, The Journal of Finance, Vol. 62, No. 2, pp. 815-839. Guay, W. R. (1999), “The impact of derivatives on firm risk: An empirical examination of new derivative users”, Journal of Accounting and Economics, Vol. 29, pp. 319-351. Jin, Y., Jorion, P. (2006), “Firm Value and Hedging: Evidence from US Oil and Gas Producers”, The Journal of Finance, Vol. 61, No. 2, pp. 893-919. Judge, A. (2006), “Why and How UK Firms Hedge”, European Journal of Finance, Vol. 12, No. 3, pp. 407-441. Klimczak, K. M. (2005), “Corporate Risk Management from Stakeholders' Perspective”, TRANS’ 05, SGH, Warszawa, Poland, pp. 371-380. MacCrimmon, K. R., Wehrung, D. A. (1990), “Characteristics of Risk Taking Executives”, Management Science, Vol. 36, No. 4, pp. 422-435. Machlup, F. (1967) “Theories of the Firm: Marginalist, Behavioral, Managerial”, American Economic Review, Vol. 58, No. 1, pp. 1-33. Mayers, D., Smith, C. W. (1987), “Corporate Insurance and the Underinvestment Problem”, The Journal of Risk and Insurance, Vol. 54, No. 1, pp. 45-54. Mian, S.L. (1996), “Evidence on Corporate Hedging Policy”, Journal of Financial And Quantitative Analysis, Vol. 31, No. 3, pp. 419-439. Miller, M. H., Modigliani, F. (1958), “The Cost of Capital and the Theory of Inverstment”, American Economic Review, Vol. 48, pp. 261-297. Miller, M. H., Modigliani, F. (1963), “Corporate Income Taxes and the Cost of Capital: A Correction”, American Economic Review, Vol. 53, pp. 433-443. Nance, D. R., Smith, C.W., Smithson, C. W. (1993), “On the Determinants of Corporate Hedging”, Journal of Finance, Vol. 48, pp. 280. Popper, K. (1959), The Logic of Scientific Discovery, Basic Books, New York. R: A Language and Environment for Statistical Computing, R Foundation for Statistical Computing (2005) Vienna, Austria, http://www.R-project.org Smith, C. W., Stulz, R. M. (1985), “The Determinants of Firm's Hedging Policies”, Journal of Finance and Quantitative Analysis, Vol. 20, No. 4, pp. 391-405. Tufano, P. (1996), “Who manages risk? An empirical examination of risk management practices in the gold mining industry”, The Journal of Finance, Vol. 51, No. 4, pp. 1097-1137. Williamson, O.E. (1987), The Economic Institutions of Capitalism: Firms, Markets, Rational Contracting, Free Press, New York, London. Williamson, O. E. (1998), “The Institutions of Governance”, The AEA Papers and Proceedings, Vol. 88, No. 2, pp. 75-79.