A view inside corporate risk management

Published

Journal Article

© 2019 INFORMS. Why do firms manage risk? According to various theories, firms hedge to mitigate credit rationing, to alleviate information asymmetry, and to reduce the risk of financial distress. However, empirical support for these theories is mixed. Our paper addresses the “why” by directly asking the managers that make risk management decisions. Our results suggest that personal risk aversion in combination with other executive traits plays a key role in hedging. Our analysis also indicates that risk-averse executives are more likely to rely on (more conservative) fat-tailed distributions to estimate risk exposure. While most theories of risk management ignore the human dimension, our results suggest that managerial traits play an important role.

Full Text

Duke Authors

Cited Authors

  • Bodnar, GM; Giambona, E; Graham, JR; Harvey, CR

Published Date

  • November 1, 2019

Published In

Volume / Issue

  • 65 / 11

Start / End Page

  • 5001 - 5026

Electronic International Standard Serial Number (EISSN)

  • 1526-5501

International Standard Serial Number (ISSN)

  • 0025-1909

Digital Object Identifier (DOI)

  • 10.1287/mnsc.2018.3081

Citation Source

  • Scopus