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Real implications of corporate risk management: Evidence from U.S. oil producers

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  • Dionne, Georges

    (HEC Montreal, Canada Research Chair in Risk Management)

  • Mnasri, Mohamed

    (HEC Montreal, Canada Research Chair in Risk Management)

Abstract

This study revisits the question of whether risk management has real implications on firm value, risk, and accounting performance using a new dataset on the hedging activities of U.S. oil producers. In light of the controversial results in the literature, this paper estimates the hedging premium question for firms using a more robust econometric methodology, namely essential heterogeneity models, that controls for bias related to selection on unobservables and self‒selection in the estimation of marginal treatment effects (MTE). We find that oil producers with higher propensity scores for the use of more extensive hedging activities tend to have higher marginal firm value and higher marginal risk reduction, and realize stronger marginal accounting performance. They also have significant average treatment effects (ATE) for firm financial value, idiosyncratic risk and systematic risk.

Suggested Citation

  • Dionne, Georges & Mnasri, Mohamed, 2018. "Real implications of corporate risk management: Evidence from U.S. oil producers," Working Papers 18-5, HEC Montreal, Canada Research Chair in Risk Management.
  • Handle: RePEc:ris:crcrmw:2018_005
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    Cited by:

    1. Georges Dionne & Olfa Maalaoui Chun & Thouraya Triki, 2019. "The governance of risk management: The importance of directors’ independence and financial knowledge," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 22(3), pages 247-277, September.

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    More about this item

    Keywords

    Corporate risk management; real implications; value creation; risk reduction; hedging benefits; oil producers; marginal treatment effect; average treatment effect; essential heterogeneity model;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • 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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