Project Finance in Theory and Practice, 2nd Edition

Chapter 3

Project Characteristics, Risk Analysis, and Risk Management

Introduction

Risk management has become a relevant topic in corporate finance theory and in managerial practice. In recent years, corporate executives have progressively changed their focus from pure financial risk management to enterprise-wide risk management (Morgan Stanley, 2005; Nocco and Stulz, 2006) and have paid more attention to the links between enterprise risk, stock price performance, and corporate valuation. Intuitively, a lower volatility of cash flows, a reduced level of business risk, and a reasonable balance between debt and equity are all factors that enhance corporate value and, if the firm is listed, increase stock market prices. The topic of risk management ...