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Risk, the Limits of Financial Risk Management, and Corporate Resilience

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  • René M. Stulz

Abstract

Existing evidence shows convincingly that expected cash flows of non-financial firms can be negatively affected by their total risk, so that non-financial firms can create shareholder wealth by managing their total risk. After reviewing theories that demonstrate links between firm value and total risk, I examine how financial risk management is used to manage firm total risk. I conclude from the evidence that the use of financial risk management is mostly limited to near-term risk in non-financial firms. I offer explanations for this limited role of financial risk management. I argue that the limitations of financial risk management make it important for firms to also focus on resilience and call for more research on the costs and benefits of resilience.

Suggested Citation

  • René M. Stulz, 2024. "Risk, the Limits of Financial Risk Management, and Corporate Resilience," NBER Working Papers 32882, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32882
    Note: CF
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    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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