Firm Risk Management Policies: Financial Hedging and Corporate Diversification

Publication Type

Conference Proceeding Article

Publication Date

2001

Abstract

Under what conditions will a firm engage in related or unrelated diversification to manage its risk exposures? Under what conditions will a firm use financial hedging markets to manage its risk exposures? Although it first appears that financial hedging and firm diversification may be substitutes in managing risks, this paper argues that is often not the case. Specifically, this paper develops a stakeholder theory of firm risk management and shows that financial hedging and diversification are more often complementary rather than substitutive means of risk management. Therefore, the introduction of financial hedging markets can increase the incentive for corporate diversification.

Keywords

risk management, finance mathematical models, hedging, diversification, risk exposure

Discipline

Finance and Financial Management | Strategic Management Policy

Research Areas

Strategy and Organisation

Publication

Academy of Management Proceedings

First Page

N1

Last Page

N6

ISSN

0065-0668

Identifier

10.5465/APBPP.2001.6132940

Publisher

Academy of Management

City or Country

Washington, DC, USA

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