A View Inside Corporate Risk Management


Author Information : Gordon M. Bodnar (Johns Hopkins University)
Erasmo Giambona (Syracuse University)
John R. Graham (Duke University)
Campbell R. Harvey (Duke University)

Year of Publication : Management Science (2018)

Summary of Findings : Firms with risk averse executives are significantly more likely to hedge.

Research Questions : Does executive risk aversion affects corporate risk management?

What we know : The importance of personal risk aversion for corporate risk management has not been identified before.

Novel Findings : There is a human element in corporate policies.

Full Citations : A View Inside Corporate Risk Management, by G. Bodnar, E. Giambona, J. Graham, and C. Harvey, Management Science, Forthcoming.

Abstract : 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.


Click here to access Full Paper

Firms with risk averse executives are significantly more likely to hedge.

Erasmo Giambona

Michael J. Falcone Chair in Real Estate and Director, James D. Kuhn Real Estate Center at Syracuse University's Martin J. Whitman School of Management
Erasmo Giambona is the Michael J. Falcone Chair in Real Estate, and serves as director of the James D. Kuhn Real Estate Center. His research and teaching interests focus on corporate finance and real estate. Prior to coming to the Whitman School, Giambona served as a tenured associate professor of finance and real estate at the University of Amsterdam in The Netherlands. He has been a visiting professor at Yale University, University of Southern California, and Bocconi University (Milan, Italy). He has published numerous papers in the areas of corporate finance and real estate and his research has been featured in Review of Financial Studies, Journal of Financial and Quantitative Analysis, and Real Estate Economics, just to name a few. Giambona holds a Ph.D. in business economics from the University of Catania, in Italy. He also earned a Ph.D. in finance from the University of Connecticut.
Erasmo Giambona

Leave A Reply