Abstract
This 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.
Keywords
BusinessFinanceCorporate financeInvestment (military)Risk management
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Publication Info
- Year
- 1993
- Type
- article
- Volume
- 48
- Issue
- 5
- Pages
- 1629-1629
- Citations
- 992
- Access
- Closed
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Cite This
Kenneth Froot,
David Scharfstein,
Jeremy C. Stein
(1993).
Risk Management: Coordinating Corporate Investment and Financing Policies.
The Journal of Finance
, 48
(5)
, 1629-1629.
https://doi.org/10.2307/2329062
Identifiers
- DOI
- 10.2307/2329062