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.


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

Erasmo Giambona

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