Handbook of Empirical Corporate Finance SET

Chapter 18

Managing Corporate Risk*

Clifford W. Smith, Jr.    William E. Simon Graduate School of Business Administration University of Rochester

Abstract

Recent developments in corporate risk management include an expansion of the available instruments, a material reduction in the costs of risk management products, and a more sophisticated understanding of their benefits. The chapter examines the underlying theory of how risk management increases firm value, and it summarizes the evidence on the use of risk management instruments.

Keywords

risk management

derivatives

insurance

taxes

Contents

Abstract   540

Keywords   540

1. Introduction   541

2. Risk exposures and hedging   541

2.1. Risk management instruments   541

2.2. Risk exposure   543

3. Benefits of risk ...