MP R A

Munich Personal RePEc Archive

Risk Management Theory: A comprehensive empirical assessment

Karol Marek Klimczak
Leon Kozminski Academy of Enterpreneurship and Management

23. July 2007

Online at http://mpra.ub.uni-muenchen.de/4241/ MPRA Paper No. 4241, posted 24. July 2007

Risk Management Theory Running head: RISK MANAGEMENT THEORY

Risk Management Theory: A om!rehensi"e em!iri a# assessment $orking %a!er Karo# Marek K#im &ak 'eon Ko&minski A ademy o( Entre!reneurshi! and Management in $arsa)* %o#and

Karo# Marek K#im &ak* %h+,+ kmk#im-ko&minski+edu+!# %hone: ./0 112 314511564* ./0 112 314511547 8a9: ./0 112 3145175:4 'eon Ko&minski A ademy o( Entre!reneurshi! and Management u#+ ;agie##onska 3<=34 :757:1 $arsa) %o#and

Risk Management Theory A>stra t The aim o( this !a!er is to de"e#o! a methodo#ogy (or thorough em!iri a# testing o( ma?or ontem!orary or!orate risk management theories: (inan ia# theory* agen y theory*

stakeho#der theory and ne) institutiona# e onomi s+ @n#ike in !re"ious resear h* the tests are organised around theories* rather than indi"idua# hy!otheses+ I used a num>er o( tests (or ro>ustness and su>?e ted hy!otheses to re!eated testing* ross5"eri(ying resu#ts+ E"iden e o( tests ondu ted on a sam!#e o( 13: om!anies #isted at the $arsa) Sto k E9 hange in %o#and* o"ering years (rom 1::1 to 1::3* #ear#y !oint to #o) em!iri a# "eri(i ation o( a## theories onsidered+ Ho)e"er* I (ind e"iden e (or some theoreti a# determinants: urren y e9!osure* market5to5>ook "a#ue* IT and ser"i e se tors and si&e+ In on #usion I suggest im!#i ations (or (uture em!iri a# and on e!tua# resear h+

Key)ords: or!orate risk management* hedging* deri"ati"es* AART

Risk Management Theory Risk Management Theory: A comprehensive empirical assessment Working Paper

There ha"e >een many em!iri a# studies aiming at (inding su!!ort (or the "arious theories o( or!orate (inan ia# risk management+ Ho)e"er* su>seBuent resear h !a!ers (ai#ed to determine )hi h theories are su!!orted >y the data and )hi h are not+ In onseBuen e >oth theoreti a# resear h e((orts and the design o( a!!#ied methods (or or!orate risk management are sta##ed >y the ina>i#ity to de ide )hi h theoreti a# a!!roa h to (o##o)+ A(ter a s!ate o( ne) resear h in this (ie#d in the #ate 4:Cs there ha"e >een (e) studies that added to our understanding o( or!orate hedging >eha"iour+ In identa##y* most "a#ua>#e !ie es o( resear h in re ent years on entrated on methodo#ogi a# issues: the endogeneity !ro>#em .;in and ;orion* 1::62* in #usion o( non5deri"ati"e hedging .,a"ies et a#+* 1::6D ;udge* 1::62* and assum!tions a>out the !ur!ose o( deri"ati"e use .8au#kender* 1::32+ In this !a!er I (o##o) the methodo#ogi a# strain o( resear h and !ro!ose "eri(i ation o( risk management theory )hi h is (o used not on indi"idua# hy!otheses >ut on theories+ I a#so attem!t to !ro"ide strong e"iden e as to the "eri(i ation status o( these theories >y using a num>er o( methods and su>?e ting hy!otheses to re!eated testing+ This !a!er aims to design and ondu t an e9hausti"e em!iri a# in"estigation into a## ma?or or!orate risk management theories* )hi h )ou#d !ro"ide strong statement o( their "eri(i ation status+ The theories onsidered in #ude risk management mode#s de"e#o!ed )ithin the >ody o( the (o##o)ing theories o( the (irm: (inan ia# theory* agen y theory* stakeho#der theory and ne) institutiona# e onomi s+ AonseBuent#y* )hi#e most resear h !a!ers !resent the hy!otheses in se tions on entrated around !arti u#ar determinants o( risk management* I dis uss them in the order o( theories (rom )hi h they originated+

Risk Management Theory The in #usion o( ne) institutiona# e onomi s and stakeho#der theory* none o( )hi h has >een tested in the onte9t o( risk management* is the (irst attem!t to introdu e these theories to em!iri a# resear h in the (ie#d+ Eoth theories are re#ati"e#y ne) and immature+ Ho)e"er* sin e they o((er a ne) !ers!e ti"e on the !ro>#em o( hedging* it is )orth)hi#e to onsider them+ Another ontri>ution o( this !a!er is a ohesi"e testing methodo#ogy+ 8irst o( a##* I designed a set o( hy!otheses >asing on !re"ious resear h+ Se ond#y* des!ite using a ne) a!!roa h to em!iri a# "eri(i ation* I stri"ed to maintain om!ara>i#ity )ith !re"ious studies in terms o( hy!otheses and statisti a# methods+ Third#y* I tested hy!otheses using a )ide range o( statisti a# methods* )ith re!eated testing o( the same hy!othesis* )hi h !ro"ided dou>#e "eri(i ation o( resu#ts+ These issues are dis ussed in the se tion on methodo#ogy >e#o)+ The hoi e o( data a#so !ro"ides a ne) insight into risk management !ra ti es o( om!anies+ The dataset (or this study om!rises annua# re!ort data (or 13: %o#ish #isted om!anies* in the !eriod o( 1::151::3+ 8e) studies o( e onomi theories are arried out using emerging market data+ In the !eriod e9amined %o#ish om!anies had ready a ess to deri"ati"es and )ere su>?e t to Internationa# A ounting Standard 71 and 74 regu#ation+

Ho)e"er on#y 7:F used hedging* (ar (e)er than in de"e#o!ed Euro!ean or o"erseas markets+ It is there(ore interesting to in"estigate this ne) market and he k i( resear h resu#ts mat h those (rom di((erent markets+ Theories and !re"ious resear h 8inan ia# e onomi s a!!roa h 8inan ia# e onomi s a!!roa h to or!orate risk management has so (ar >een the most !ro#i(i in terms o( >oth theoreti a# mode# e9tensions and em!iri a# resear h+ This a!!roa h >ui#ds u!on #assi Modig#iani5Mi##er !aradigm .Mi##er and Modig#iani* 14302 )hi h states

Risk Management Theory onditions (or irre#e"an e o( (inan ia# stru ture (or or!orate "a#ue+ This !aradigm )as #ater e9tended to the (ie#d o( risk management+ This a!!roa h sti!u#ates a#so that hedging #eads to #o)er "o#ati#ity o( ash (#o) and there(ore #o)er "o#ati#ity o( (irm "a#ue+ Rationa#es (or or!orate risk management )ere dedu ed (rom the irre#e"an e onditions and in #uded: higher de>t a!a ity .Mi##er and Modig#iani* 14672* !rogressi"e ta9 rates* #o)er e9!e ted osts o( >ankru!t y .Smith and Stu#&* 14032* se uring interna# (inan ing .8root et a#+* 14472* in(ormation asymmetries .Ge &y et a#+* 144<2 and om!arati"e ad"antage in in(ormation .Stu#&* 14462+ The u#timate resu#t o( hedging* i( it indeed is >ene(i ia# to the (irm* shou#d >e higher "a#ue G a hedging !remium+ E"iden e to su!!ort the !redi tions o( (inan ia# e onomi s theory a!!roa h to risk management is !oor+ A#though risk management does #ead to #o)er "aria>i#ity o( or!orate "a#ue .e+g+ ;in and ;orion* 1::62* )hi h is the main !rereBuisite (or a## other e((e ts* there seems to >e #itt#e !roo( o( this >eing #inked )ith >ene(its s!e i(ied >y the theory+ One o( the

most )ide#y ited !a!ers >y Tu(ano .14462 (inds no e"iden e to su!!ort (inan ia# hy!otheses* and on entrates on the in(#uen e o( manageria# !re(eren es instead+ On the other hand* the higher de>t a!a ity hy!othesis seems to >e "eri(ied !ositi"e#y* as sho)n >y 8a(( and Nguyen .1::12* Graham and Rogers .1::12 and Guay .14442+ Interna# (inan ing hy!othesis )as !ositi"e#y "eri(ied >y Guay .14442 and Ge &y et a#+ .144<2* )hi#e it )as re?e ted >y 8a(( and Guyen .1::12 and Mian .14462+ ;udge .1::62 (ound e"iden e in su!!ort o( (inan ia# distress hy!othesis+ Ta9 hy!othesis )as "eri(ied !ositi"e#y >y Nan e* Smith and Smithson .14472* )hi#e other studies "eri(ied it negati"e#y .Mian* 1446 D Graham and Rogers* 1::12+ More re ent#y ;in and ;orion .1::62 !ro"ide strong e"iden e o( #a k o( "a#ue re#e"an e o( hedging* a#though some !re"ious studies ha"e identi(ied a hedging !remium .A##ayannis and $eston* 1::1* Aarter et a#+* 1::62+

Risk Management Theory The hy!otheses tested in this study in #ude a## o( the a>o"e rationa#es* e9 e!t (or in(ormation asymmetries and om!arati"e in(ormation ad"antage+ The (irst t)o hy!othesis test the under#ying assum!tion* that hedging #eads to #o)er "o#ati#ity o( om!any "a#ue+ Hypothesis 1a: There is a negative relationship between hedging and stock price volatility. Hypothesis 1b: There is a negative relationship between hedging a particular risk and stock price exposure to that risk factor. The ne9t hy!othesis tests (or a hedging !remium >y #ooking at om!anies that start hedging* rather than a ross5se tion o( hedgers "s+ non5hedgers* (o##o)ing the a!!roa h o( Guay .14442+ Hypothesis 1c: Firms that begin hedging experience a rise in market value of equity. A ording to de>t a!a ity and ta9 in enti"e rationa#es* (irms shou#d >e interested in raising their gearing ratios* using the ta9 shie#d to the (u## e9tent* and #o)ering their ta9 harges+ Hedging (a i#itates this >y #o)ering risk o( de(au#t and a##o)ing higher de>t a!a ity+ 'o)er "o#ati#ity o( earnings may a#so resu#t in #o)er a"erage ta9 harges i( the ta9 ur"e is on a"e* ho)e"er in %o#and or!orate in ome ta9 is (#at5rate so this e((e t is not im!ortant+ Hypothesis 1d: There is a positive relationship between hedging and debt equity ratio. Hypothesis 1e: Firms that begin hedging! raise their debt equity ratio subsequently. Hypothesis 1f: Firms with low times interest earned ratio "#$%T interest paid&! but above one! hedge more often than either firms with high ratio or lower than one.

Hypothesis 1g: Firms that hedge are able to pay their interest charges "times interest earned ratio ' 1&. Hypothesis (h: There is a negative relationship between hedging and income tax paid "relative to sales&. Hypothesis (i: )verage tax charge falls after firms start to hedge.

Risk Management Theory

<

The (ina# hy!othesis o( (inan ia# e onomi s is #inked to se uring interna# (inan ing (or im!ortant strategi !ro?e ts and #o)ering osts o( (inan ia# distress+ These in enti"es shou#d >e more im!ortant to om!anies )ith high de"e#o!ment e9!enditure or other gro)th o!tions+ Hypothesis (*: There is a positive relationship between hedging and growth options! represented by high +,- expenditure or high market.to.book value ratio. Agen y theory Agen y theory e9tends the ana#ysis o( the (irm to in #ude se!aration o( o)nershi! and ontro#* and manageria# moti"ation+ In the (ie#d o( or!orate risk management agen y issues ha"e >een sho)n to in(#uen e manageria# attitudes to)ard risk taking and hedging .Smith and Stu#&* 14032+ Theory a#so e9!#ains a !ossi>#e mismat h o( interest >et)een shareho#ders* management and de>t ho#ders due to asymmetries in earning distri>ution* )hi h an resu#t in the (irm taking too mu h risk or not engaging in !ositi"e net "a#ue !ro?e ts .Mayers and Smith* 140<2+ AonseBuent#y* agen y theory im!#ies that de(ined hedging !o#i ies an ha"e im!ortant in(#uen e on (irm "a#ue .8ite and %(#eiderer* 14432+ The #atter hy!otheses are asso iated )ith (inan ing stru ture* and gi"e !redi tions simi#ar to (inan ia# theory+ Manageria# moti"ation (a tors in im!#ementation o( or!orate risk management ha"e >een em!iri a##y in"estigated in a (e) studies )ith a negati"e e((e t .8a(( and Nguyen* 1::1D Ma Arimmon and $ehrung* 144:D Ge &y et a#+* 144<2+ Nota>#y* !ositi"e e"iden e )as (ound ho)e"er >y Tu(ano .14462 in his ana#ysis o( the go#d mining industry in the @S+ 8inan ia# !o#i y hy!otheses )ere tested in studies o( the (inan ia# theory* sin e >oth theories gi"e simi#ar !redi tions in this res!e t+ A## in a##* the >u#k o( em!iri a# e"iden e seems to >e against agen y theory hy!otheses ho)e"er+ Agen y theory !ro"ides strong su!!ort (or hedging as a res!onse to mismat h >et)een menageria# in enti"es and shareho#der interests+ The (o##o)ing hy!otheses are designed to test the >asi im!#i ations o( this theory+ The (irst hy!othesis tests i( (irms hedge

Risk Management Theory in order to de rease risk to >#o k shareho#ders+ The ne9t three hy!otheses address the

Buestion o( hedging as a too# to sa(eguard de>tho#der interest and thus in rease de>t a!a ity+ @n(ortunate#y* due to data #imitations I )as una>#e to test manageria# o!tion and sto k ho#ding hy!otheses+ Hypothesis (a: There is a positive relationship between hedging and individual block ownership. Hypothesis (b: Hedging is used most often by companies with high debt equity ratios. Hypothesis (c: Firms start hedging more often if they have low equity assets ratios and wish to issue debt or take out a bank loan. Hypothesis (d: Firms start hedging more often if they have high debt equity ratios and wish to issue debt or take out a bank loan. Ne) Institutiona# E onomi s A di((erent !ers!e ti"e on risk management is o((ered >y ne) institutiona# e onomi s+ The (o us is shi(ted here to go"ernan e !ro esses and so io5e onomi institutions that guide these !ro esses* as e9!#ained >y $i##iamson .14402+ A#though no em!iri a# studies o( ne) institutiona# e onomi s a!!roa h to risk management ha"e >een arried out so (ar* the theory o((ers an a#ternati"e e9!#anation o( or!orate >eha"ior+ Name#y* it !redi ts that risk management !ra ti es may >e determined >y institutions or a e!ted !ra ti e )ithin a market or industry+ Moreo"er* the theory #inks se urity )ith s!e i(i assets !ur hase .$i##iamson* 140<2* )hi h im!#ies that risk management an >e im!ortant in ontra ts )hi h >ind t)o sides )ithout a##o)ing di"ersi(i ation* su h as #arge (inan ing ontra t or #ose oo!eration )ithin a su!!#y hain+ I( institutiona# (a tors do !#ay an im!ortant ro#e in hedging* this shou#d >e o>ser"a>#e in the data+ 8irst o( a##* there may >e a di((eren e >et)een se tors+ Se ond#y* hedging may >e more !o!u#ar in ertain !eriods G in %o#and one might "enture a guess* that hedging shou#d

Risk Management Theory >e ome more !o!u#ar )ith years+ A more on rete im!#i ation o( this theory* is that

shareho#ders may >e interested in attra ting >#o k o)nershi! >y redu ing om!any risk+ Here NIE is simi#ar in its !redi tions to agen y theory+ Ho)e"er this theory a#so suggest that (irm !ra ti es may >e in(#uen ed >y the o)nershi! stru ture in genera#+ These im!#i ations are tested )ith the (o##o)ing hy!otheses+ Hypothesis /a. There are differences in popularity of hedging between industries. Hypothesis /b: The frequency of hedging changes with time. Hypothesis /c: Hedging is positively related to individual block onwership. Hypothesis /d: Hedging behaviour is influenced by the ownership structure: the government! institutional investors! foreign investors. Stakeho#der theory Stakeho#der theory* de"e#o!ed origina##y >y 8reeman .140/2 as a manageria# instrument* has sin e e"o#"ed into a theory o( the (irm )ith high e9!#anatory !otentia#+ Stakeho#der theory (o uses e9!#i it#y on an eBui#i>rium o( stakeho#der interests as the main determinant o( or!orate !o#i y+ The most !romising ontri>ution to risk management is the e9tension o( im!#i it ontra ts theory (rom em!#oyment to other ontra ts* in #uding sa#es and (inan ing .Aorne## and Sha!iro* 140<2+ In ertain industries* !arti u#ar#y high5te h and ser"i es* onsumer trust in the om!any >eing a>#e to ontinue o((ering its ser"i es in the (uture an su>stantia##y ontri>ute to om!any "a#ue+ Ho)e"er* the "a#ue o( these im!#i it #aims is high#y sensiti"e to e9!e ted osts o( (inan ia# distress and >ankru!t y+ Sin e or!orate risk management !ra ti es #ead to a de rease in these e9!e ted osts* om!any "a#ue rises .K#im &ak* 1::32+ There(ore stakeho#der theory !ro"ides a ne) insight into !ossi>#e rationa#e (or risk management+ Ho)e"er* it has not yet >een tested dire t#y+ In"estigations o( (inan ia# distress hy!othesis .Smith and Stu#&* 14432 !ro"ide on#y indire t e"iden e .e+g+ ;udge* 1::62+

Risk Management Theory I ha"e designed the (o##o)ing hy!otheses to test (or the use(u#ness o( this theory in risk management resear h+ The (irst hy!othesis addresses the im!ortan e o( ustomer trust

1:

and resu#ting !otentia##y high osts o( (inan ia# distress in IT and ser"i e se tors+ The se ond hy!othesis a#so #ooks at (inan ia# distress osts* >ut in a genera# manner G om!anies )ith high intangi>#e or human assets* and gro)th o!tions are more sensiti"e to ontinuity !ro>#ems+ This is essentia##y the same as hy!othesis 1? o( (inan ia# e onomi s+ And (ina##y* sma##er (irms are more !rone to (inan ia# !ro>#ems* )hi h shou#d in rease their interest in risk management !ra ti es+ The #ast hy!othesis is ho)e"er in #ear ontrast to a## !re"ious em!iri a# e"iden e+ Hypothesis 0a: Hedging is more popular among firms form %T and service sectors. Hypothesis 0b: 1ompanies with high market.to.book value hedge more. Hypothesis 0c: Hedging is more common among smaller firms. Methodo#ogy Sin e e"iden e in su!!ort o( "arious risk management theories remains mi9ed I (ound there is a need to design a study* )hi h )i## >ring these theories together and test them on a sing#e sam!#e using ro>ust methodo#ogy+ This a!!roa h a##o)s om!arison o( theories and their assum!tions and an !ro"ide >etter indi ation o( !ossi>#e )ays to de"e#o! ne) theoreti a# mode#s+ The se tions >e#o) e9!#ains in detai# the study design issues+ ,ata Ana#ysis )as ondu ted on a !ane# o( %o#ish non5(inan ia# om!anies* #isted at the $arsa) Sto k E9 hange+ The !ane# in #uded data o( some 13: om!anies .num>ers (or !arti u#ar years "aried s#ight#y2 (or the !eriod (rom 1::1 to 1::3+ The #ast t)o years o( the series )ere used (or "eri(i ation o( resu#ts and data (or this !eriod )as gathered (rom 7: om!anies se#e ted random#y+

Risk Management Theory The hoi e o( %o#ish #isted om!anies (or theory "eri(i ation reBuires a omment*

11

sin e there may >e on erns a>out !ossi>#e idiosyn rati (a tors in(#uen ing risk management in %o#and+ A## om!anies in #uded in the study )ere >ased in %o#and* their o)nershi! stru ture not)ithstanding+ My !osition is that "eri(ying risk management theory on data (rom a ountry )hi h is sti## de"e#o!ing an yie#d resu#ts as re#ia>#e as studies >ased on ri hest ountry data+ 8irst#y* %o#ish om!anies ha"e (or the !ast 1< years >een ra!id#y #earning ne) >usiness mode#s and te hniBues* in #uding (inan ia# management+ Sin e I ha"e >ased my study on the assum!tion o( rationa#ity I am o( the o!inion that %o#ish om!anies >ased their de ision to im!#ement risk management on an edu ated ?udgement o( !ros and ons+ Se ond#y* due to ongoing e onomi transition there are (e)er histori a# and institutiona# determinants o( the urrent state o( risk management in %o#and than there might >e in the @SA* @K* or Germany+ Third#y* su((i ient (inan ia# market in(rastru ture does e9ist in %o#and (or om!anies to engage in risk management+ AonseBuent#y* %o#ish om!anies an im!#ement (inan ia# risk management !ro esses !ro"ided they (ind them use(u#+ The sam!#e )as (urther #imited to in #ude on#y non5(inan ia# or!orations* that is om!anies (rom se tors other than (inan ia# ser"i es+ This a!!roa h* ado!ted >y Nan e et a#+ .14472* 8a(( and Nguyen .1::12 and Eerkman and Erad>ury .14462 is >ased on the !remise that >anks* insuran e om!anies and other (inan ia# se tor enter!rises !ur hase and issue deri"ati"e instruments not on#y (or hedging >ut a#so (or trading !ur!oses+ Sin e >oth in these and in my study deri"ati"e instruments use is a !ro9y (or hedging su h om!anies had to >e e9 #uded (rom the sam!#e+ $hen it omes to data o##e tion t)o a#ternati"e a!!roa hes to risk management resear h are !resent in the #iterature: use o( annua# re!ort data and Buestionnaires+ In this study I se#e ted the (ormer o!tion+ A#though it #imits the se#e tion o( "aria>#es to the ontents o( o((i ia# (i#ings* data gathered using this a!!roa h are more re#ia>#e as they ha"e >een

Risk Management Theory !re!ared using trans!arent ru#es s!e i(ied >y regu#ation+ In the ase o( %o#and a ne) #a) >ased on IAS 74 )as introdu ed in 1::1* )hi h regu#ated the dis #osure o( (inan ia#

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instruments* in #uding hedging+ Hen e* the >eginning o( the series )as set (or the (irst re!orts !re!ared a ording to that regu#ation+ A(ter re"ie)ing "aria>#e distri>ution in the sam!#e t)o #argest om!anies )ere e9 #uded as out#iers+ These )ere Te#ekomunika ?a %o#ska S+A+* the #argest te#e om !ro"ider* and %KN Or#en S+A+* the #argest oi# re(inement and distri>ution om!any+ Eoth om!anies )here in om!ara>#y #arger than other om!anies in the sam!#e and ou#d not >e ana#ysed together )ith the rest o( the market+ A#though >oth o( them used hedging e9tensi"e#y* they )ou#d ha"e to >e ana#ysed in a sam!#e o( #arge Euro!ean om!anies* rather than %o#ish ones+ Haria>#es Ahoi e o( de!endant "aria>#e (or risk managements studies !oses an im!ortant methodo#ogi a# !ro>#em: in this study I used a >inary hedging !ro9y+ I ins!e ted manua##y annua# re!orts o( sam!#e om!anies to determine )hether a om!any used deri"ati"e instruments+ I( a om!any did dis #ose deri"ati"es and did not state that they )ere used (or s!e u#ation* I #assi(ied it as a hedger+ This onstru tion o( the hedging "aria>#e is o( ourse su>?e t to ?usti(ied riti ism+ ;in and ;orion .1::62 suggest using de#ta measures* )hi#e 8au#kender .1::32 stresses the im!ortan e o( (irst determining )hat deri"ati"es are used (or+ Other authors !oint to the signi(i an e o( non5deri"ati"e hedging .;udge 1::62+ Ne"erthe#ess the >inary !ro9y method has a!!eared most o(ten in risk management resear h (or !ra ti a# reasons+ I de ided to use this a!!roa h (irst#y to maintain om!ara>i#ity )ith !re"ious resear h* and se ond#y* >e ause it )as im!ossi>#e to determine o>?e ti"e#y* >asing on annua# re!orts* )hat )as the !ur!ose o( deri"ati"e use* as %o#ish om!anies re(rain (rom using hedge a ounting due to um>ersome regu#atory reBuirements+

Risk Management Theory A detai#ed des ri!tion o( "aria>#es is sho) in Ta>#e 1+ E9!osure indi ators )ere

17

a# u#ated (or E@R=%'N* @S,=%'N e9 hange rates and (or $IEOR* E@R 'IEOR* and @S, 'IEOR as >etas in a AA%M sty#e rates o( return regression* (o##o)ing ommon !ra ti e in the (ie#d .e+g+ Ahoi and %rasad* 1443D Erad#ey and Mo#es* 1::1D Ahen and So* 1::1D Ara>>* 1::12+ They )ere #ater hanged to a>so#ute "a#ues* as I )as interested in the e9tent* not the dire tion o( e9!osure+ Sa#es re"enue )as used as a s a#ing "aria>#e* sin e a## !re"ious studies sho)ed si&e to >e a strong determinant o( risk management !ra ti es+ Industry oding )as done in a ordan e )ith the genera# nomen #ature o( the $arsa) Sto k E9 hange+ Table 1. -escription of variables
Symbol
CURR !ASS e#p $R e#p UR e#pU$R e#pUS' e#pW$R " AR

Name
Tota# (oreign urren y denominated assets and #ia>i#ities EBuity=Tota# assets ratio E9!osure to euro 'i>or 7M interest rate E9!osure to E@R=%'N e9 hange rate E9!osure to @S, 'i>or 7M interest rate E9!osure to @S,=%'N e9 hange rate E9!osure to %'N $i>or 7M interest rate Gearing 5 ,e>t=EBuity ratio

Symbol
investF invest"ov invest$n% invest$nst isss&e iss&e' iss&e( MT)* M* R'

Name
Share o( #arge (oreign shareho#ders in eBuity .3F and a>o"e2 Go"ernmentCs share in eBuity i( a>o"e 3F+ Share o( >#o k indi"idua# shareho#ders in eBuity .3F and a>o"e2 Share o( #arge institutiona# in"estors in eBuity .3F and a>o"e2 Aash in(#o) (rom issued eBuity Aash in(#o) (rom issued de>t Aash in(#o) (rom ne) #oans Market5to5>ook "a#ue o( eBuity Market Ha#ue o( EBuity RJ, E9!enditure 5 Aost o( (inished RJ, !ro?e ts

" AR+$NT Interest >earing gearing I Interest >earing de>t=eBuity ratio goal, , Einary "aria>#e set to TR@E i( (irm stated hedging as the goa# o( deri"ati"e trading

Einary hedging "aria>#e* set to TR@E i( om!any riskComm Einary "aria>#e set to TR@E i( om!any used ommodity dis #osed deri"ati"e instruments deri"ati"es riskF. Einary "aria>#e set to TR@E i( om!any used urren y deri"ati"es

$N'USTR- Aoded as: onstru tion* hemi a#* tim>er !rodu ts* ma hinery* energy* trade* IT* media* meta#* onstru tion materia#s* manu(a turing* (ood* te#e om* ser"i es $NT' )T T$ SA( S Tota# interest >earing de>t as !er entage o( sa#es Times Interest Earned ratio Re"enue (rom sa#es G !ro9y (or (irm si&e+

risk$R TA. */(

Einary "aria>#e set to TR@E i( om!any used interest rate deri"ati"es Aor!orate in ome ta9 as !er entage o( sa#es Sto k !ri e "o#ati#ity G standard de"iation o( )eek#y rates o( return

Resu#ts The data )as ana#ysed using a num>er o( te hniBues+ A## o( the ana#ysis )as !er(ormed in R statisti s !a kage+ In the (irst ste! I arried out tests o( means and medians* as

Risk Management Theory is usua##y done in other studies o( this (ie#d+ The om!arison )as done in t)o )ays:

1/

stati a##y* >y om!aring hedgers to non5hedgers* and dynami a##y* >y om!aring om!anies that started to hedge in a gi"en year )ith om!anies that did not hedge+ I then !ro eeded to Hote##ingCs tests (or di((eren e o( "e tors o( means* ANOHA* #ogit regression* and AART ana#ysis+ The #ast method* AART ana#ysis* is in essen e a de ision tree method (or >reaking a sam!#e into t)o ategories using a series o( de ision nodes+ It has not yet >e ome !o!u#ar in (inan ia# resear h* >ut as I )i## sho) >e#o) it has a num>er o( ad"antages+ Table (. 2ample characteristics by year
*ariable H goalH riskF3 risk%+ risk1omm %4-52T+6 (evel 8A'SE TR@E 8A'SE TR@E 8A'SE TR@E 8A'SE TR@E 8A'SE TR@E hemi a# #othing onstru tion onstru tion materia#s energy (ood IT ma hinery manu(a turing media meta# other !harma euti a# ser"i es te#e om tim>er !rodu ts trade N 0112 41 .0:F2 17 .1:F2 1:1 .00F2 1/ .11F2 1:1 .04F2 17 .11F2 11: .46F2 3 ./F2 117 .40F2 1 .1F2 6 3 1: 3 1 17 4 17 1: / 1: 1 1 1 < 6 1/ 110 - AR 0110 46 .<:F2 /1 .7:F2 111 .01F2 13 .10F2 111 .01F2 16 .14F2 11< .47F2 1: .<F2 17/ .40F2 7 .1F2 0 3 11 3 1 13 11 17 1: / 11 1 1 7 < 6 13 1/: 0113 11: .<1F2 /3 .14F2 111 .<4F2 77 .11F2 111 .<0F2 7/ .11F2 1/6 .4/F2 4 .6F2 131 .40F2 7 .1F2 0 3 11 3 7 13 17 17 11 6 17 1 1 / 0 6 10 131

@ni"ariate tests (or the di((eren e o( means .ta>#e 72 indi ated signi(i ant di((eren es >et)een hedgers and non5hedgers in si&e: hedgers tended to >e #arger >oth in terms o( sa#es and market "a#ue o( eBuity+ This has >een sho)n to >e true in other markets >y a## !re"ious studies and is a #ear !roo( o( >arriers or strong e onomies o( s a#e )hi h must e9ist in

Risk Management Theory deri"ati"e hedging+ Ho)e"er this resu#t ontradi ts hy!otheses 1a* 7 and / * a## o( )hi h im!#y that sma##er* more risky (irms shou#d >ene(it more (rom im!#ementing hedging+ T)o other signi(i ant di((eren es )ere in ta9 harges and indi"idua# >#o k o)nershi!+ Ho)e"er* the sign in >oth ases )as o!!osite to the !redi tions .hy!otheses 1h* 1a and 7 2+ Aom!arisons o( means >et)een ne) hedgers and non5hedgers sho)ed on#y t)o signi(i ant di((eren es in the year 1::1 (or e9!osure to E@R=%'N e9 hange rates and $IEOR interest

13

rate+ In genera# tests in the dynami a!!roa h !ro"ided )ide#y "arying resu#ts* >oth in terms o( magnitude and sign+ Table /. Test for the difference of means
'i44erence o4 means he%gers vs5 non6he%gers 1::1 *ariable e9!E@R e9!@S, e9!$IR e9!EIR e9!@IR HO' M* GEAR GEARKINT TIE TA. SA( S R, MTEH invest$n% in"estGo" in"estInst in"est8 ELASS INT,EET A@RR issue' issue, issueA t :+:10: 5:+3136 5:+4416 5:+031/ 5:+4:4< :+61<0 7+6<67 :+4/<1 5:+<7:: 1+1176 1+:6// 7+1000 5:+/6:6 1+1/:1 51+3647 :+1/:1 :+:71< 5:+7/63 5:+:140 5:+7<1/ 1+4067 1+:331 5:+36:6 1+:744 1::1 t 1+307/ 5:+6:<3 1+:701 5:+<3<3 5:+01:7 51+:/7/ /+343/ :+1436 1+11:0 :+0/1< 1+3341 3+7014 :+01/3 1+4103 51+13// 5:+61:7 :+/7<< 1+6114 :+<0:/ 1+1171 :+0<63 5:+<011 5:+/<4/ 5:+/433 1::7 t 5:+137< 51+7</0 51+13/6 5:+1:<7 5:+6/<: 57+/31/ 7+6141 :+110: 5:+011/ :+<1:0 1+//</ /+04:< 51+1414 1+34<7 51+16<6 :+1113 :+<134 1+6606 :+6137 5:+6/<: 1+/4/4 :+<7:: 5:+6::1 51+7/6< 1::1 ! :+4036 :+6::/ :+7177 :+7466 :+7631 :+3701 15111: :+7/3< :+/6<0 1510<3 151:23 151129 :+6/6: :+13<7 :+11:3 :+01:0 :+4</: :+<144 :+40/1 :+<1:< 151138 :+147< :+3<61 151:3< 1::1 ! 151223 :+3//4 :+7:10 :+/3:6 :+/1/1 :+1441 151111 :+<60: :+16/< :+/::4 15122; 151111 :+/111 1511:0 151338 :+3/7: :+6613 :+1:4< :+/763 :+16<4 :+7017 :+/761 :+671/ :+611: 1::7 ! :+0<01 :+1<11 :+13:0 :+41/0 :+314: 15111< 15111: :+4:67 :+/10: :+/<11 :+13:: 151111 :+1401 :+111< 151082 :+0710 :+/<33 1511<; :+3747 :+310< :+17<1 :+/666 :+3/4/ :+10:1 'i44erence o4 means ne76he%gers vs5 non6he%gers 1::1 t 51+1<// 5:+71<< 51+:0/0 5:+1003 :+1010 :+631< 51+3<07 5:+67<1 51+//73 :+30<< 5:+/3<1 5:+1:37 :+/676 :+:631 1+//0/ :+<001 51+:/7< 51+646: 5:+<6:4 51+:634 :+7134 :+<313 :+/136 :+0::4 1::7 t 5:+433/ 5:+<<:: :+6131 :+7<:7 :+/<33 1+7<:< :+6:<3 :+47<4 :+7:<: 51+3<7: 5:+1:1< 51+<46< :+716: :+6101 1+716/ 5:+1//0 51+7/:1 :+13/6 1+761< :+71<7 :+1116 :+334/ :+76/0 :+44/< 1::1 ! 151089 :+<//1 151:1; :+031: :+0333 :+3163 :+1141 :+313< :+13/7 :+3301 :+6/0< :+07<0 :+6//1 :+4/01 :+1314 :+/77< :+7::4 :+:431 :+//0< :+14:4 :+</37 :+/37/ :+6<17 :+/13: 1::7 ! :+7/10 :+///: :+3/:3 :+<117 :+6734 :+1</6 :+3/37 :+73:6 :+<346 :+114: :+4141 151=88 :+<31< :+3710 :+141< :+0:<7 :+10/0 :+<440 :+1<61 :+<//7 :+0714 :+3<<1 :+<16: :+7117

In >o#d: !5"a#ues >e#o) :+1 and "aria>#es )ith signi(i ant !5"a#ues in t)o su>seBuent years+

Risk Management Theory Tests (or the di((eren e o( medians .ta>#e /2 on(irmed resu#ts o( the !re"ious test:

16

si&e* ta9 harges and indi"idua# >#o k ho#ding )ere a## signi(i ant again+ Ho)e"er there )ere a#so other signi(i ant di((eren es+ Hedgers tended to ha"e a higher median o( (oreign urren y assets and #ia>i#ities* )hi h )ou#d !ro"ide a #ear reason (or hedging+ Moreo"er* they e9hi>ited #o)er "o#ati#ity o( sto k !ri es .hy!othesis 1a2 and higher market5to5>ook "a#ue .1? and />2+ 'o)er "o#ati#ity is !arti u#ar#y im!ortant* as it sho)s that a## other >ene(its arising (orm it an >e attaina>#e+ Test o( ne) hedgers "s+ non5hedgers sho)ed no signi(i ant di((eren es here+ Table 0. Tests for the difference of medians.
'i44erence o4 Me%ians he%gers vs5 non6he%gers 1::1 *ariable e9!E@R e9!@S, e9!$IR e9!EIR e9!@IR HO' M* GEAR GEARKINT TIE TA. SA( S R, MTEH invest$n% in"estGo" in"estInst in"est8 ELASS INT,EET A@RR issue' issue, issue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i44erence o4 Me%ians ne76he%gers vs5 non6he%gers 1::1 $ 6:0+3 /63 316 /71+3 74/ /71 /16 <:1 /11 613 6/3 <63 <06 /14 14< 106 7<1+3 73: 644 761 0:0 434 4<: 461 1::7 $ 711 711 1// 176 13: 11: 16< 1<: 701+3 741 777 /// 716 131 170 11:+3 130 1//+3 1/< 76<+3 701 /07 741+3 714+3 1::1 ! 151108 :+14/6 151038 :+66/3 :+416/ :+6314 :+6163 :+66<7 :+11<1 :+011: :+0746 :+7737 :+1/10 :+61:4 :+:<3< :+143/ :+1717 :+1317 :+6010 :+/41: :+:031 :+3471 :+7:63 :+/:00 1::7 ! :+/1// :+71/4 :+3/71 :+/3:1 :+/001 :+1/36 :+3:<3 :+1:17 :+133/ :+0011 :+74:7 :+6//< :+1066 :+/1<0 :+171: 1+:::: :+7/41 :+0131 1518:3 :+1701 :+0604 :+//<0 :+6316 :+1</1

M$ stands (or Mann5$hitney statisti + In >o#d: !5"a#ues >e#o) :+1 and "aria>#es )ith signi(i ant !5 "a#ues in t)o su>seBuent years+

Risk Management Theory Ne9t* I tested (or the mu#ti"ariate di((eren e o( means using Hote##ingCs test (or the di((eren e o( "e tors o( means+ The #ogi >ehind this test is that )hi#e t)o grou!s may not e9hi>it strong di((eren es in terms o( indi"idua# (a tors* they may sho) di((eren es in the om>ination o( these (a tors+ I (irst grou!ed hy!otheses 1a* 1d* 1h and 1? o( (inan ia# e onomi s .)hi h ou#d >e tested using this method2* )hi h !rodu ed a "e tor o( means o( (o##o)ing "aria>#es: "o#ati#ity* gearing* ta9 harge* and market5to5>ook "a#ue+ The statisti

1<

(or years 1::151::7 )as res!e ti"e#y 73+31* </+:0 and 06+7:D in a## ases mu h a>o"e the 3F on(iden e #e"e# mark o( 1:+:/0+ @n(ortunate#y one annot te## (rom this resu#t )hi h (a tors )ere signi(i ant+ Ey om!aring this to uni"ariate tests it an >e seen that on#y the ta9 harge )as signi(i ant* a#though )ith the )rong sign+ Hy!otheses 1 * 1e and 1i (or the ne)5hedgers ou#d not >e tested using this method due to a singu#ar o"arian e matri9+ Hote##ingCs test a#so ga"e !ositi"e resu#ts (or hy!otheses 1a and 1> o( agen y theory* )ith a s ore o( 1/+44* 7/+40 and 77+17+ Ho)e"er in this ase the signi(i ant (a tor )as >#o k ho#ding* )hi h had a sign o!!osite to the !redi tions+ It is there(ore hard to determine )hether this resu#t is re#ia>#e* es!e ia##y sin e the di((eren e (or gearing )as in on #usi"e >oth in signi(i an e and sign+ Ana#ysis o( "arian e )as a suita>#e method (or testing hy!otheses )hi h reBuired >reaking the sam!#e into more than t)o grou!s: hy!otheses 1(* 1g* 1 * 1d* 7a57d* and /a+ The (irst o( these* hy!othesis 1(* stated that hedging shou#d >e more !o!u#ar among (irms )ith #o)* >ut higher than one* times interest earned ratios+ To test this* I di"ided the sam!#e om!anies into three grou!s: ratio >e#o) one* ratio a>o"e one >ut >e#o) the median* and ratio a>o"e the median+ There )as ho)e"er no signi(i ant di((eren e >et)een grou!s .8I1+3:6< in 1::1* :+1300 in 1::1 and 1+/0// in 1::12+ Hy!othesis 1g stated that hedgers shou#d >e o"ering their interest e9!enses* so I assigned a dummy "aria>#e "a#ue 1 i( this )as true* and : i( times interest earned ratio )as >e#o) one+ Resu#ts sho)ed no signi(i an e*

Risk Management Theory e9 e!t (or 1::1 at 0F #e"e# .8 statisti (or 1::151::7 )as res!e ti"e#y: :+:/01* 7+1::0* :+06:02+ Agen y theory hy!othesis 1 stated that om!anies moti"ated to hedging might >e

10

ones )ith #o) eBuity=tota# assets ratios )hi h raise their gearing #e"e# su>seBuent#y+ To test it I reated t)o ne) "aria>#es: #o) eBuity=tota# asset ratio .s!#it at the median2 and rise in gearing .)ith t)o #e"e#s* Cin reaseC and Cde reaseC2+ Resu#ts sho)ed no signi(i ant di((eren es (or any o( the (a tors or their intera tion+ The 8 statisti (or 1::1 ranged (rom :+:7/1 to :+/17:+ 8or 1::7 I had to use Kruska#5$a##is test due to heterogeneity o( "arian es G the resu#t )as :+441< .insigni(i ant2+ Another agen y theory hy!othesis* 1d* (o used on om!anies )ith high gearing that #ook to in rease their de>t a!a ity+ There )as ho)e"er no signi(i ant di((eren e (or either 1::1 or 1::7* >oth (or de>t=eBuity ratio a# u#ated using tota# de>t and on#y interest >earing de>t+ Ne) institutiona# e onomi s hy!otheses on entrated on the ro#e o( trend* industry and o)nershi! (a tors+ Industry .7a2 !ro"ed not to in(#uen e hedging* )ith 8 "a#ues o( :+0:/4* :+77:0 and :+3460 (or 1::151::7 res!e ti"e#y+ %oo#ing om!anies into #arger* more genera# industry grou!s did not he#!+ There )as a#so no signi(i ant di((eren e >et)een the time !eriods* as hy!othesis 7> suggested .8I1+04012+ Ho)e"er* testing (or in(#uen e o( o)nershi! stru ture on hedging and starting hedging did yie#d some signi(i ant resu#ts .hy!otheses 7 and 7d* ta>#e 32+ 8or this ana#ysis I on"erted o)nershi! in(ormation )as into dummy "aria>#es taking "a#ue 1 i( a !arti u#ar grou! o( o)ners )as !resent+ Heterogeneity o( "arian es )as dete ted in 1::1 data* so I a# u#ated Kruska#5$a##is statisti (or this and the (o##o)ing years* and they ga"e signi(i ant resu#ts+ 8 statisti s )ere signi(i ant in a## three years (or indi"idua# >#o k o)nershi!* a#though this )as most#y due to signi(i ant negati"e orre#ation o( this "aria>#e )ith (irm si&e+ Institutiona# o)nershi! !rodu ed signi(i ant restu#t in 1::1+ Resu#ts (or ne)5hedgers )ere !oorer* )ith indi"idua# >#o k o)nershi! signi(i ant at

Risk Management Theory 0F #e"e# in 1::7 on#y* and the intera tion )ith go"ernment o)nershi! at <F on(iden e #e"e#+ Go"ernment o)nershi! )as a#so signi(i ant at 4F #e"e# in 1::1+ The (ina# ANOHA test )as (or hy!othesis /a o( stakeho#der theory* )hi h !ointed to IT and ser"i e se tors as !otentia##y more interested in risk management+ Ho)e"er no signi(i ant di((eren e )as dete ted .8 statisti : 1+4137* :+3111* :+76132+ Table 7. )489) results for ownership structure determinants of hedging.
0112 $artlett test :ruskal.;allis test F.statistics: Indi"idua# Go"ernment Institutiona# 8oreign Indi"idua#:Go"ernmentMM Indi"idua#:Institutiona#MM Go"ernment:Institutiona#MM Indi"idua#:8oreignMM Go"ernment:8oreignMM Institutiona#:8oreignMM 7*/<14 :*1/47 :*:1:1 :*:416 :*171< 1*:<4< :*001< :*7/3/ :*0:7< :*6:77 1>1;;< :*6141 :*00<6 :*<671 :*<1<0 :*7:13 :*73:0 :*330< :*7<71 :*//:: /*:143 1*11/3 4*/634 :*36:6 :*1367 :*/<6/ 1*/336 :*3101 :*:114 1*417/ 1>1:=< :*1741 1>110= :*/334 :*6473 :*/41< :*17:< :*/<7/ :*417/ 1>191; 0*417< :*7034 1*:314 :*:110 :*1//3 7*1</: :*::60 :*7/00 :*::37 :*7<:/ 1>1138 :*3730 :*7:<1 :*41:7 :*611: 1>1=== :*47/6 :*3361 :*4/1: :*3//: st+M /*1160 7*3414 ! 1>1:11 1>18<1 year 0110 st+ 1*1431 7*6311 ! :*1</7 1>18;1 0113 st+ 1*::/: 0*3431 ! :*1364 1>113:

14

M st+ stands (or Cstatisti C* MMintera tions

'ogit regression has a#so >een used in simi#ar studies* )hi h moti"ated me to em!#oy it in my ana#ysis+ Ho)e"er I de ided not to !oo# a## the "aria>#es together in one regression mode#* >ut rather reate se!arate mode#s (or di((erent theories+ I reated one eBuation (or hedgers "s+ non5hedgers hy!otheses and another (or ne)5hedgers "s+ non5hedgers hy!otheses o( a## the theories+ I estimated the eBuations se!arate#y (or ea h o( the three years to om!are sta>i#ity o( resu#ts G a## signi(i ant "aria>#es maintained their sign and oe((i ient "a#ues hanged on#y s#ight#y* )hi#e insigni(i ant "aria>#e oe((i ients "aried )ide#y+ Ta>#e 6 sho)s resu#ts (or eBuations estimated on 1::1 data* )hi h )ere onsistent#y >est in terms o( signi(i an e* (it and !redi tion a ura y+ A## attem!ts to mode# ne)5hedgers "s+ non5hedgers !rodu ed insigni(i ant resu#ts+ Hen e* I did not !ro"ide a detai#ed ta>#e o( resu#ts+

Risk Management Theory

1:

T)o eBuations (ai#ed to !rodu e any signi(i ant resu#ts: agen y theory mode#* )here hedging )as to >e orre#ated )ith indi"idua# >#o k o)nershi! and gearing* and ne) institutiona# e onomi s eBuation* )hi h (o used on shareho#der stru ture+ $hereas NEI hy!otheses )ere tested on#y as a !i#ot study* agen y theory resu#ts are im!ortant* as I o>tained negati"e resu#ts a#so in !re"ious tests+ Sur!rising#y* stakeho#der theory mode# had t)o signi(i ant "aria>#es G MTEH and SA'ES G a#though the o"era## (it )as #o)* and !redi tion a ura y !oor+ A mu h >etter resu#t )as o>tained >y (inan ia# e onomi s mode#* )here three "aria>#es )ere signi(i ant: e9!E@R* e9!@S, and MTEH+ T)o "aria>#es had signs o!!osite to e9!e ted: e9!osure to @S,=%'N had a negati"e sign .e9!osure "aria>#es )ere in a>so#ute "a#ues2* and in ome ta9 had a !ositi"e oe((i ient+ To om!are my resu#ts )ith !re"ious studies I (ina##y !oo#ed a## the "aria>#es together+ I o>tained a good (it )ith high !redi tion a ura y+ The singi(i ant "aria>#es )ere: e9!osure to @S, and E@R rates* "o#ati#ity* MTEH* IT and Ser"i es se tor and si&e .sa#es2+ %redi tions )ere Buite a urate: 6<F and <:F o( orre t hits* )ith 76F and /1F o( (a#se !ositi"es+ The num>er o( (a#se !ositi"es ou#d >e de reased* a#though at the e9!ense o( !ositi"e hits* >y estimating an eBuation )ith on#y the signi(i ant "aria>#es .ta>#e 62+

Risk Management Theory

11

Table <. =ogit regression results for hedgers vs. non.hedgers "%T2 stands for %T and 2ervices industries&.
Financial economics hypotheses Haria>#e Estimate &5"a#ue .Inter e!t2 51*<601 51*:/<: HO' 511*1/03 5:*411: e9!E@R 1*<<71 1*<<6: e9!@S, 57*//74 51*/6<: e9!$IR 6*340/ :*6:/: GEARKINT :*0471 :*661: TAP 17*1161 1*11/: MTEH :*3374 1*:/0: =og.=ikelihood .01!A?>A (??1 (??( True @ositives >7!??B C1!0CB False @ositives /<!>/B 1<!A7B Stakehol%er theory hypotheses Haria>#e Estimate &5"a#ue .Inter e!t2 51*747: 53*3:1: ITS :*6603 1*:11: MTEH :*3/67 1*331: !r&y hN :*:::: 7*710: =og.=ikelihood .0C!(/CA (??1 (??( True @ositives 7C!C(B <0!>1B False @ositives 7(!/1B 07!A7B )est 4it 7ith mi#e% variables Haria>#e Estimate .Inter e!t2 51*10<: !r&y hN :*:::: ITS 7*1::: MTEH :*7337 HO' 5/<*10:: e9!E@R 1*76<: e9!@S, 57*14/: =og.=ikelihood ./0!17>A (??1 True @ositives 0?!??B False @ositives (1!0/B %r.NO&O2 :*:/:< :*7613 :*::33 :*:176 :*3/6: :*3:01 :*163/ :*:/:6 (??/ <>!<7B 0>!C/B Agency theory hypotheses Haria>#e Estimate .Inter e!t2 5:*66/0 in"estInd 51*341< GEARKINT :*0411 =og.=ikelihood .<0!><7> (??1 True @ositives <A!(/B False @ositives 7<!(7B &5"a#ue 51*<11: 51*464: :*41/: (??( >1!0/B 7<!/0B %r.NO&O2 :*:0<: C :*:/04 M :*76:< (??/ >1!>AB 7?!??B

M MM M

M Ne7 $nstit&tional conomics hypotheses Haria>#e Estimate &5"a#ue .Inter e!t2 5:*/110 51*:3:: in"estInd 51*67/7 51*01<: in"estGo" 51*:111 51*137: in"estInst 5:*1743 5:*11/: in"est8 :*<<7: :*001: MMM =og.=ikelihood .</!A?77 (??1 (??( M True @ositives 7C!C(B <0!>1B MMM False @ositives 7(!/1B 07!A7B %r.NO&O2 :*1470 :*:6<< C :*1/4: :*07:/ :*7<01 (??/ 7<!01B 0C!17B

%r.NO&O2 :*:::: :*7:</ :*:1:0 :*:::4 (??/ 7<!01B 0C!17B

&5"a#ue 51*/07: 7*3<1: 1*61<: 1*1/:: 51*70<: 1*006: 51*/1<: (??( >1!0/B 1A!1(B

All variables Haria>#e .Inter e!t2 A@RR e9!E@R %r.NO&O2 e9!@S, :*1701 e9!$IR :*:::/ MMM HO' :*::04 MM GEARKINT :*11/4 TAP :*:1<: M MTEH :*::74 MM in"estInd :*:13< M in"estGo" ELASS (??/ ITS 7(!A0B SA'ES (A!1>B =og.=ikelihood True @ositives False @ositives

Estimate 51*41:: 1*1<:: 7*1/1: 53*6:4: 57*4/0: 534*4::: :*1631 77*<7:: 1*<:3: 57*/<0: 51*743: :*1646 /*77:: :*:::: .1>!7A<( (??1 <<!<>B /7!A?B

&5"a#ue 51*163: :*417: 1*741: 51*10:: 5:*1/1: 51*4:3: :*:<<: :*03<: 1*063: 51*14<: 5:*67:: :*:01: 1*013: 1*401: (??( C0!<(B 1(!??B

%r.NO&O2 :*1//: :*7361 :*:160 M :*:116 M :*00<1 :*:360 C :*470< :*741< :*:611 C :*14/0 :*3103 :*4731 :*:6<4 C :*::14 MM (??/ >?!??B 0?!>0B

The (ina# method I used )as the #assi(i ation and regression trees .AART2 a#gorithm (or determining )hi h o( the (a tors suggested >y theory !ro"ide >est riteria (or distinguishing hedgers (rom non5hedgers+ This method* de"e#o!ed origina##y >y Ereiman et a#+ .140/2* is an a#gorithm )hi h !rodu es a de ision tree onsisting o( a hierar hy o( riteria (or s!#itting a sam!#e into t)o grou!s+ In the ase o( risk management AART mode#s !ro"ide

Risk Management Theory

11

a non5#inear method (or distinguishing hedgers (rom non5hedgers+ It a##o)s not on#y (or non5 #inearity o( re#ationshi!s >ut a#so non5#inearity o( "aria>#es* su>5sam!#e heterogeneity and e9isten e o( out#iers+ 8or e9am!#e* AART an a##o) (inding di((eren es in hedging determinants >et)een sma## and #arge om!anies* rather than mi9 the t)o together #ike other methods do+ The a#gorithm takes a## "aria>#es as in!ut* un#ike the #ogit method* and determines )hi h !ro"ide >est #assi(i ation riteria+ Estimated trees an then >e tested using !redi tions (or other !eriods or sam!#es+ I om!uted se!arate mode#s (or ea h o( the three !eriods and then ross5"eri(ied+ The (o##o)ing mode#s )ere om!uted using rpart #i>rary+ There is one methodo#ogi a# note to >e made here+ AART mode#s take one set o( ar>itrary !arameters G ost o( mis #assi(i ation matri9 G )hi h an !otentia##y in(#uen e the resu#ts+ Ey de(au#t the matri9 is set to eBua# osts (or a## errors+ Ho)e"er* in this study I )as interested in identi(ying hedgers* and it ou#d >e argued that there are some om!anies that donCt hedge e"en though they do e9hi>it a## the determining (a tors+ This ou#d )arrant ske)ing the osts to #o) ost o( (a#se !ositi"e #assi(i ation+ I attem!ted re a# u#ating the mode#s using "arious settings o( these osts+ The resu#ts sho)ed #itt#e im!ro"ement in a ura y* )hi#e the num>er o( )rong !ositi"es rose dramati a##y+ AonseBuent#y* I de ided to use eBua# osts+ The a#gorithm !rodu ed Buite di((erent trees in the three !eriods* ho)e"er t)o "aria>#es )ere used in a## o( them: sa#es .!ro9y (or si&e2 and industry+ On to! o( that* in 1::1 ta9 harge )as used* in 1::1 times interest earned ratio and e9!osure to E@R=%'N rate* )hi#e in 1::7 it )as "o#ati#ity o( sto k !ri e+ Aross5"eri(i ation resu#ts "aried >et)een 7:F and 31F a ura y* and )ere onsistent#y a>o"e the !ro!ortion o( hedgers in the sam!#e* )hi h is the thresho#d a>o"e )hi h )e an say the a#gorithm !rodu es signi(i ant resu#ts+ The AART method (ai#ed tota##y ho)e"er in distinguishing ne)5hedgers (rom non5hedgers* )hi h )as not a sur!rise* onsidering resu#ts o( !re"ious ana#yses+

Risk Management Theory

17

SALES<5e+5 N industry1

SALES>5e+5 N Y Y

industry2

expEUR<0,007 expEUR>0.007 TIE<5. 2! TIE>5. 2!

Fig. 1. 1lassification tree for hedgers "6& vs. non.hedgers "4& based on (??( data "industry1 stands for construction! timber products! machinery! energy! trade! %T! media! metal! clothing and servicesD industry( stands for chemical! machinery! trade and food&.

SALES<1.5e+5

SALES>1.5e+5 SAELS<1.2e+! SALES>1.2e+! industry" Y Y

#$L<0.0"5 SALES<2.!%e+5 SALES>2.!%e+5

#$L>0.0"5

Fig. (. 1lassification tree for hedgers "6& vs. non.hedgers "4& based on (??/ data "industry/ stands for construction! machinery! trade! %T! construction materials! clothing! food! telecom! services and EotherE&

SALES<5e+5 N &T'#<1.!%( &T'#>1.!%( Y

SALES>5e+5

)URR<0.107%

)URR>0.107%

&T'#<0.!"11 &T'#>0.!"11

Fig. /. 1lassification tree for hedgers "6& vs. non.hedgers "4&on (??( data! without %4-52T+6 variable

Risk Management Theory

1/

Ee(ore inter!reting the resu#ts* I (irst de ided to dro! the 1::1 tree* )hi h had #o)est (ore ast a ura y .7:F2+ The 1::1 tree .a ura y o( 74F (or 1::1 data and 31F (or 1::7* )ith (a#se !ositi"es 17F and 11F o( non5hedgers2 used the industry "aria>#e t)i e: it )as the riterion (or se#e ting #arge om!anies that did hedge* and sma##er om!anies that did not hedge+ The other sma##er om!anies )ere #assi(ied as hedgers i( they had higher e9!osure to E@R=%'N rate or a "ery high #e"e# o( times interest earned ratio .a>o"e 3+/72+ A#though high e9!osure to e9 hange rate risk ou#d >e a determining (a tor* !ro"ided hedging does not remo"e it* the interest o"erage )as a sur!rise+ It seems that hedgers )ere high#y #iBuid and had no !ro>#ems ser"i ing their de>t* )hi h is ontrary to hy!otheses 1( and 1g+ The 1::7 tree .a ura y o( /7F and //F* (a#se !ositi"es 1:F and 1<F2 started >y #assi(ying a## om!anies )ith sa#es #o)er than 13:+001 mi##ion %'N as non5hedgers* )hi#e a## om!anies #arger than 1+1 >i##ion %'N )ere #assi(ied as hedgers+ O( the ones in >et)een the industry determined #assi(i ation o( hedgers in the (irst ste!* )hi#e other om!anies )ere #assi(ied as hedgers on#y i( they had #o) "o#ati#ity o( sto k !ri e .>e#o) :+:73/2 and sa#es higher than 160 mi##ion %'N+ To re(ine the de ision trees I de ided to om!ute them again )ithout the industry "aria>#e+ A#though this "aria>#e )as indi ated >y ne) institutiona# e onomi s as a !ossi>#y determining (a tor .7a2* there )as a risk* that resu#ts are in(#uen ed >y #o) num>er o( om!anies in some se tors .Ta>#e 12+ The ne) trees )ere Buite di((erent (rom the !re"ious ones* >ut maintained the same #e"e# o( a ura y+ I dis arded the 1::7 tree* >e ause it )as too >ran hed* )hi h made inter!retation di((i u#t* and a hie"ed #o)er a ura y .74F and /1F !ositi"e hits* 11F and 11F (a#se !ositi"es2 than the 1::1 tree ./0F and 37F* )ith 14F and 14F (a#se !ositi"es2+ The 1::1 tree took t)o ne) "aria>#es: tota# (oreign urren y assets and #ia>i#ities* and market5to5>ook "a#ue+ Among sma##er om!anies hedgers )ere identi(ied as ha"ing MTEH ratio a>o"e 1+604 G resu#t in #ine )ith hy!otheses 1? and />+ 'arge om!anies

Risk Management Theory

13

)ere #assi(ied as hedgers i( they had tota# urren y assets and #ia>i#ities o( a>o"e 1:+<0F o( annua# sa#es or MTEH a>o"e :+6711+ The (irst riterion is de(inite#y #ogi a#* as it indi ates greater e9!osure* )hi#e the se ond is again in su!!ort o( theory+ A#though it has to >e noted* that MTEH >e#o) one annot >e re(erred to as high+ Resu#ts o( a## ana#yses )ere "eri(ied >y om!uting the tests again on a random sam!#e o( 7: om!anies (or the years 1::/ and 1::3+ Tests o( means and medians !rodu ed simi#ar resu#ts in terms o( the signs o( di((eren e* though (e)er "aria>#es sho)ed statisti a##y signi(i ant di((eren es+ This )as to >e e9!e ted in a sma##er sam!#e* and thus I a e!ted onsistent signs o( di((eren e as su!!orting e"iden e+ Tests o( medians !rodu ed no signi(i ant di((eren es at a##+ Hote##ingCs test (or hy!otheses 1a* 1d* 1h and 1? o( (inan ia# e onomi s on(irmed signi(i ant di((eren e+ The other set o( (inan ia# hy!othesis ou#d not >e tested due to o"arian e matri9 singu#arity+ The test (or agen y theoryCs hy!otheses 1a and 1> sho)ed no signi(i an e+ Ana#ysis o( "arian e tests on(irmed !re"ious resu#ts* ho)e"er industry and o)nershi! hy!otheses ou#d not >e "eri(ied due to #o) num>er o( o>ser"ations in grou!s+ %redi tions (or 1::/ and 1::3 o( #ogit mode#s that !rodu ed signi(i ant resu#ts )ere a urate at /6F561F #e"e# )ith (a#se !ositi"es ratio ranging >et)een 1/F and 71F+ As in !re"ious tests* it )as the !oo#ed5"aria>#es mode# that attained >est resu#ts+ AART de ision trees maintained their #e"e# o( a ura y in !redi tions+ The 1::1 and 1::7 trees )ith industry "aria>#es orre t#y identi(ied >et)een one third and //F o( hedgers )ith :F517F o( (a#se !ositi"es+ The re(ined 1::1 tree a hie"ed a ura y o( 33F and 3<F* though the num>er o( (a#se !ositi"es )as high: //F and 11F res!e ti"e#y+ ,is ussion Resu#ts des ri>ed a>o"e #ear#y sho) that on#y se#e ted (e) o( the determinants indi ated >y the theories )ere su!!orted >y the data+ Out o( a## (inan ia# e onomi s

Risk Management Theory hy!otheses I (ound e"iden e (or on#y 1a .#o)er "o#ati#ity2 and 1? .gro)th o!tions2

16

hy!otheses+ None o( agen y theory hy!otheses !ro"ed he#!(u# in identi(ying determinants o( hedging+ The t)o ne) a!!roa hes* stakeho#der and ne) institutiona# e onomi s* )hi h )ere tested here did !ro"ide some !otentia##y use(u# insights: hy!otheses 7a .industry (a tors2* /a .IT and ser"i es se tor2* and /> .intangi>#e assets2 )ere !ositi"e#y "eri(ied+ In addition I (ound that three "aria>#es )ere signi(i ant as )e##: si&e o( the om!any .Q2* e9!osure to E@R=%'N rate .Q2* and (oreign urren y assets and #ia>i#ities as !er entage o( sa#es .Q2+ 8ina##y* my attem!ts to "eri(y determinants o( starting hedging (ai#ed* and there(ore !ro"ide no >asis (or dis ussion+ A #oser #ook at the hy!otheses )hi h )ere !ositi"e#y "eri(ied makes it a!!arent that hy!otheses /> and 1? )ere tested using the same "aria>#e G market5to5>ook "a#ue+ A#though I tried to "eri(y hy!othesis 1? using t)o other "aria>#es: RJ, e9!enditure and a!ita# e9!enditure* none o( these !ro"ed signi(i ant and >oth had negati"e oe((i ients in #ogit mode#s+ Hen e* a Buestion arises i( the signi(i an e o( MTEH "aria>#e su!!orts the interna# (inan ing hy!othesis 1?* or intangi>#e assets hy!othesis />+ The insigni(i an e o( other measures o( gro)th o!tions and e"iden e !ro"ided in other studies in su!!ort o( osts o( (inan ia# distress .;udge* 1::62 hy!otheses seem to !oint to the #atter hy!othesis+ The on #usion o( #o) em!iri a# "eri(i ation o( the theories may >e Buestioned on methodo#ogi a# grounds+ In (a t* there is a num>er o( !ro>#ems in em!iri a# ana#ysis o( risk management+ 8irst#y* it may >e argued that the sam!#e does not a##o) genera#isations+ Ho)e"er* this argument does not stand to #oser ins!e tion+ The dis i!#ine o( e onomi s assumes that a## !eo!#e and organisations are* at #east #imited#y* rationa#* no matter in )hi h market they a t+ $ith the e9 e!tion o( ne) institutiona# e onomi s* none o( the theories under in"estigation make any in(eren es as to u#tura# or ountry di((eren es+ Moreo"er* resu#ts mat h those (rom !re"ious studies sur"eyed in the se ond se tion o( this !a!er+

Risk Management Theory Se ond#y* ross5industry sam!#e studies su((er (rom endogeneity issues .;in* ;orion*

1<

1::62+ $e an ne"er >e sure that a signi(i ant orre#ation is not in (a t s!urious* re#ated to a third (a tor+ 8or this reason I in #uded dynami hy!otheses and tested (or determinants o( starting hedging in my study* (o##o)ing Guay .14442* a#though )ithout signi(i ant resu#ts+ I a#so in #uded industry "aria>#es* )hi h !ro"ed to >e signi(i ant+ Third#y* the reader might Buestion* )hy I did not use !ane# regression in #ogit estimation* rather then estimate se!arate mode#s (or ea h year+ There )ere t)o reasons (or this+ 8irst#y* ANOHA tests sho)ed no signi(i ant di((eren e in hedging a ti"ity >et)een the !eriods+ Se ond#y* I )anted to ross5"eri(y resu#ts >y running !redi tions (rom the estimated eBuations on the rest o( data* as e9hi>ited in ta>#e 6+ 8ina##y* the "ery on e!t o( negati"e or #o) "eri(i ation may >e a##ed into Buestion+ A(ter a## most studies (o us on (inding em!iri a# su!!ort (or theories* and either su eed or not* )ithout dra)ing on #usions as to the use(u#ness o( tested theories+ This !ro>#em has >een e9tensi"e#y dis ussed in the !ast* )ith arguments ranging (rom !o!!erian (a#si(i ation .%o!!er* 14342* to neo5 #assi a# non5(a#si(i ation .e+g+ Ma h#u!* 146<2+ My !osition on this issue is that a#though )e need to >e are(u# >e(ore )e dis ard a theory* riti a# testing o( theories and their assum!tions is essentia# to resear h !rogress+ This study does not stand a#one in e9hi>iting the short omings o( !resent theories* >ut has >een !re eded >y o"er a de ade o( em!iri a# resear h )hi h !oints #ear#y to #o) "eri(i ation o( theories in Buestion+ Moreo"er* the aim o( this study is not to suggest dis arding the theories >ut to >ring the theories together* test them in a systemati (ashion and identi(y !ossi>i#ities (or (urther on e!tua# resear h in this area+ Aon #usion This !a!er in"estigated main theories o( risk management: (inan ia# e onomi s* agen y theory* stakeho#der theory and ne) institutiona# e onomi s+ Resu#ts ha"e sho)n that

Risk Management Theory

10

(inan ia# e onomi s and agen y theory hy!othesis (ound #itt#e su!!orting e"iden e* )hi#e the t)o re ent a!!roa hes* stakeho#der and NEI may >e o((ering ne) insights into the determinants o( risk management+ The !oor resu#ts #ear#y indi ate that there must >e other signi(i ant (a tors* not in #uded in !resent theories+ 8urther resear h )i## >e needed to identi(y these (a tors* and #ater in or!orate them into a om!rehensi"e theoreti a# mode# )hi h )i## e9!#ain risk management !ra ti es o( (irms >etter+ Resu#ts !oint to !ra ti a# onsiderations as main determinants o( risk management: (irms )ere (ound to >e hedging in res!onse to (oreign urren y e9!osure* and it )as most#y #arge (irms+ This im!#ies that managers onsidering im!#ementation o( (inan ia# risk management shou#d (irst #ook at their dire t e9!osures*and onsider )hat other om!anies in the market are doing rather than ana#yse the !ro>#em a#ong the #ines o( theory+ 8uture resear h may (o us on these !ra ti a# reasons and their im!#i ations (or or!orate "a#ue+ On the other hand* hedging is #inked to sto k "o#ati#ity and market "a#ue+ The Buestion remains as to the ausa# re#ationshi! >et)een this "aria>#es+ There is a needed to de!art (rom the e #e ti a!!roa h to risk management theory and attem!t onstru tion o( a ne)* om!rehensi"e theoreti a# mode#* )hi h )ou#d o"er a## o( the em!iri a##y identi(ied determinants o( risk management+

Risk Management Theory Re(eren es

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A##ayannis* G+* ;ames* $+ .1::12* RThe use o( (oreign urren y deri"ati"es and (irm market "a#ueS* Re"ie) o( 8inan ia# Studies* Ho#+ 1/* !!+ 1/7G1<6+ Eerkman* H* Erad>ury* M+ E+ .14462* REm!iri a# E"iden e on the Aor!orate use o( ,eri"ati"esS* 8inan ia# Management* Ho#+ 13* No+ 1* !!+ 351/+ Erad#ey* K+* Mo#es %+ .1::12* RThe e((e ts o( e9 hange rate mo"ements on non5(inan ia# @K (irmsS* Internationa# Eusiness Re"ie)* Ho#+ 1:* !!+ 31564+ Ereiman* '+* 8riedman* ;+* O#shen* R+* Stone* A+;+ .140/2* A#assi(i ation and Regression Trees* $ads)orth+ Aarter* ,+* ,anie#* R+* Eetty* S+ .1::62* R,oes (ue# hedging make e onomi senseT The ase o( the @+S+ air#ine industryS* 8inan ia# Management* Ho#+ 73* No+ 1* !!+ 37506+ Ahen* A+ A+* So* R+ $+ .1::12* RE9 hange rate "aria>i#ity and the riskiness o( @S mu#tinationa# (irms: e"iden e (orm the Asian (inan ia# turmoi#S* ;ourna# o( Mu#tinationa# 8inan ia# Management* Ho#+ 11* !!+ /115/10+ Ahoi* ;+ ;+* %rasad* A+ M+ .14432* RE9 hange Risk Sensiti"ity and Its ,eterminants: A 8irm and Industry Ana#ysis o( @+S+ Mu#tinationa#sS* 8inan ia# Management* Ho#+ 1/* No+ 7* !!+ <<500+ Aorne##* E+* Sha!iro* A+ A+ .140<2* RAor!orate Stakeho#ders and Aor!orate 8inan eS* 8inan ia# Management* Ho#+ 16* !!+ 351/+ Ara>>* %+ R+ .1::12* RMu#tinationa# Aor!orations and Hedging E9 hange Rate E9!osureS* Internationa# Re"ie) o( E onomi s and 8inan e* Ho#+ 11* !!+ 144571/+ ,a"ies* ,+* E k>erg* A+* Marsha##* A+ .1::62* RThe ,eterminants o( Nor)egian E9!ortersC 8oreign E9 hange Risk ManagementS* The Euro!ean ;ourna# o( 8inan e* Ho#+ 11* No+ 7* !!+ 11<51/:+ 8a((* R+* Nguyen* H+ .1::12* ROn The ,eterminants o( ,eri"ati"e @sage >y Austra#ian Aom!aniesS* Austra#ian ;ourna# o( Management* Ho#+ 1<* No+ 1* !!+ 151/+ 8au#kender* M+ .1::32* RHedging or Market TimingT Se#e ting the Interest Rate E9!osure o( Aor!orate ,e>tS* The ;ourna# o( 8inan e* Ho#+ 6:* No+ 1* !!+ 4715467+ 8ite* ,+* %(#eiderer* %+ .14432* RShou#d 8irms @se ,eri"ati"es to Manage RiskTS* in Eea"er $+* %arker* G+ .Ed+2* Risk Management: %ro>#ems and So#utions* M Gra)5Hi##* Ne) York* !!+ 615<6+ 8root* K+ A+* S har(stein* ,+ S+* Stein* ;+ A+ .14472* RRisk Management: Aoordinating Aor!orate In"estment and 8inan ing %o#i iesS* The ;ourna# o( (inan e* Ho#+ /0* No+ 3* !!+ 161451630+ 8reeman* R+ E+ .140/2* Strategi management: A stakeho#der a!!roa h* %renti e5Ha##* Eng#e)ood A#i((s* N;+ Ge &y* A+* Minton* E+A+* S hrand* A+ .144<2* R$hy 8irms @se ,eri"ati"esS* The ;ourna# o( 8inan e* Ho#+ 31* No+ /* !!+ 17175173/+ Graham* ;+ R+* Rogers* ,+ A+ .1::12* R,o (irms Hedge in Res!onse to Ta9 In enti"esTS* The ;ourna# o( 8inan e* Ho#+ 61* No+ 1* !!+ 0135074+ Guay* $+ R+ .14442* RThe im!a t o( deri"ati"es on (irm risk: An em!iri a# e9amination o( ne) deri"ati"e usersS* ;ourna# o( A ounting and E onomi s* Ho#+ 14* !!+ 7145731+ ;in* Y+* ;orion* %+ .1::62* R8irm Ha#ue and Hedging: E"iden e (rom @S Oi# and Gas %rodu ersS* The ;ourna# o( 8inan e* Ho#+ 61* No+ 1* !!+ 0475414+ ;udge* A+ .1::62* R$hy and Ho) @K 8irms HedgeS* Euro!ean ;ourna# o( 8inan e* Ho#+ 11* No+ 7* !!+ /:<5//1+ K#im &ak* K+ M+ .1::32* RAor!orate Risk Management (rom Stakeho#dersC %ers!e ti"eS* TRANSU :3* SGH* $ars&a)a* %o#and* !!+ 7<1570:+ Ma Arimmon* K+ R+* $ehrung* ,+ A+ .144:2* RAhara teristi s o( Risk Taking E9e uti"esS* Management S ien e* Ho#+ 76* No+ /* !!+ /115/73+ Ma h#u!* 8+ .146<2 RTheories o( the 8irm: Margina#ist* Eeha"iora#* Manageria#S* Ameri an E onomi Re"ie)* Ho#+ 30* No+ 1* !!+ 1577+ Mayers* ,+* Smith* A+ $+ .140<2* RAor!orate Insuran e and the @nderin"estment %ro>#emS* The ;ourna# o( Risk and Insuran e* Ho#+ 3/* No+ 1* !!+ /353/+ Mian* S+'+ .14462* RE"iden e on Aor!orate Hedging %o#i yS* ;ourna# o( 8inan ia# And Luantitati"e Ana#ysis* Ho#+ 71* No+ 7* !!+ /145/74+ Mi##er* M+ H+* Modig#iani* 8+ .14302* RThe Aost o( Aa!ita# and the Theory o( In"erstmentS* Ameri an E onomi Re"ie)* Ho#+ /0* !!+ 161514<+ Mi##er* M+ H+* Modig#iani* 8+ .14672* RAor!orate In ome Ta9es and the Aost o( Aa!ita#: A Aorre tionS* Ameri an E onomi Re"ie)* Ho#+ 37* !!+ /775//7+ Nan e* ,+ R+* Smith* A+$+* Smithson* A+ $+ .14472* ROn the ,eterminants o( Aor!orate HedgingS* ;ourna# o( 8inan e* Ho#+ /0* !!+ 10:+ %o!!er* K+ .14342* The 'ogi o( S ienti(i ,is o"ery* Easi Eooks* Ne) York+ R: A 'anguage and En"ironment (or Statisti a# Aom!uting* R 8oundation (or Statisti a# Aom!uting .1::32 Hienna* Austria* htt!:==)))+R5!ro?e t+org

Risk Management Theory

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Smith* A+ $+* Stu#&* R+ M+ .14032* RThe ,eterminants o( 8irmCs Hedging %o#i iesS* ;ourna# o( 8inan e and Luantitati"e Ana#ysis* Ho#+ 1:* No+ /* !!+ 7415/:3+ Tu(ano* %+ .14462* R$ho manages riskT An em!iri a# e9amination o( risk management !ra ti es in the go#d mining industryS* The ;ourna# o( 8inan e* Ho#+ 31* No+ /* !!+ 1:4<5117<+ $i##iamson* O+E+ .140<2* The E onomi Institutions o( Aa!ita#ism: 8irms* Markets* Rationa# Aontra ting* 8ree %ress* Ne) York* 'ondon+ $i##iamson* O+ E+ .14402* RThe Institutions o( Go"ernan eS* The AEA %a!ers and %ro eedings* Ho#+ 00* No+ 1* !!+ <35<4+