Rational Corporate Risk Management Policy: An Extension of Traditional Risk Management Theory to Incorporate Observed Managerial Behavior

There is qualitative and anecdotal evidence that corporate management deviates from received risk management theory. These deviations include: an overall hesitancy to accept projects with greater levels of total risk, increased return requirements compensating for firm-specific risk, employment of hedging strategies, the insuring of diversifiable risks, corporate diversification outside of the industry constraint, and the utilization of portfolio and other variance reducing methods. The literature primarily contributes these behaviors to principal/agent conflicts. Evidence from studies on these deviations support strong arguments based in resource scarcity, cost and availability of capital, employee/community stability, and the increases in bankruptcy costs that these risk management deviation are in the interest of shareholders. When considered in the context of the long-term impact on value, the observed deviations from received corporate risk management theory contribute substantively to the perpetuation of the firm as a long-term store of value. This paper supports two hypotheses: (1) the deviation from received risk management theory by corporate managers is broadly practiced, and (2) these deviations are generally in the interest of shareholders.

Name thesis:degree_name

Master of Arts

Level thesis:degree_level

masters

Discipline thesis:degree_discipline

Economics

Department dc:contributor.department

Economics

Grantor dc:publisher

Virginia Tech

Year dc:date.issued

2006

Author dc:creator

• Roselle, Russell Paul

Chair dc:contributor.committeechair

• Tideman, Nicolaus

Committee members dc:contributor.committeemember

• Ashley, Richard A.
• Ball, Sheryl B.

• Corporate Risk Management
• Return Requirements
• Corporate Insurance and Hedging Policy
• Corporate Capital Structure

Statement dc:rights

• In Copyright

Licence dc:rights.uri

• http://rightsstatements.org/vocab/InC/1.0/

Dc Identifier Other

etd-04252006-145221

OAI identifier oai:identifier

oai:vtechworks.lib.vt.edu:10919/31910