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A Review of the Rationales for Corporate Risk Management: Fashion or the Need?

Author

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  • Danijela Miloš Sprčić

    (Faculty of Business and Economics University of Zagreb)

  • Metka Tekavčič

    (Faculty of Economics University of Ljubljana)

  • Željko Šević

    (University of Greenwich Business School, London)

Abstract

This paper presents the extensive literature survey based both on theoretical rationales for hedging as well as the empirical evidence that support the implications of the theory regarding the arguments for the corporate risk management relevance and its influence on the company’s value. The survey of literature presented in this paper has revealed that there are two chief classes of rationales for corporate decision to hedge - maximisation of shareholder value or maximisation of managers’ private utility. The paper concludes that, the total benefit of hedging is the combination of all these motives and, if the costs of using corporate risk management instruments are less than the benefits provided via the avenues mentioned in this paper, or any other benefit perceived by the market, then risk management is a shareholder-value enhancing activity

Suggested Citation

  • Danijela Miloš Sprčić & Metka Tekavčič & Željko Šević, 2008. "A Review of the Rationales for Corporate Risk Management: Fashion or the Need?," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 1(1), pages 71-99, April.
    • Handle: RePEc:tei:journl:v:1:y:2008:i:1:p:71-99
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    References listed on IDEAS

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    Cited by:

    1. Simeon Karafolas, 2013. "Public financial support to investments in rural areas: The case of the region of Thessaly in Greece," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 6(2), pages 81-101, September.
    2. Henok Kifle, 2017. "The Impact of Regulation on Corporate Hedging Activities and the Response of Corporates ¨C A Preliminary Conceptual Framework," Business and Management Research, Business and Management Research, Sciedu Press, vol. 6(4), pages 1-15, December.
    3. Arnold, Matthias M. & Rathgeber, Andreas W. & Stöckl, Stefan, 2014. "Determinants of corporate hedging: A (statistical) meta-analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(4), pages 443-458.

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    More about this item

    Keywords

    Risk Management; Transitional Economies; Perception and Management of Risk; Empirical Surveys;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • P31 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

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