Risk Management: Coordinating Corporate Investment and Financing Policies

Journal of Finance - Tập 48 Số 5 - Trang 1629-1658 - 1993
Kenneth A. Froot, David Scharfstein, Jeremy C. Stein

Tóm tắt

ABSTRACTThis paper develops a general framework for analyzing corporate risk management policies. We begin by observing that if external sources of finance are more costly to corporations than internally generated funds, there will typically be a benefit to hedging: hedging adds value to the extent that it helps ensure that a corporation has sufficient internal funds available to take advantage of attractive investment opportunities. We then argue that this simple observation has wide ranging implications for the design of risk management strategies. We delineate how these strategies should depend on such factors as shocks to investment and financing opportunities. We also discuss exchange rate hedging strategies for multinationals, as well as strategies involving “nonlinear” instruments like options.

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Thông tin xuất bản

Journal of Finance

Tập 48 Số 5

1629-1658

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