Firm value is influenced in many direct and indirect
ways by financial risks, which consist of unexpected
changes of foreign exchange rates, interest rates and
commodity prices. The fact that a significant number of
corporations are committing resources to risk management
activities is, however, only an indication of the
potential of corporate risk management to increase firm
value. This paper presents a comprehensive review of
positive theories and their empirical evidence regarding
the contribution of corporate risk management to
shareholder value. It is argued that because of
realistic capital market imperfections, such as agency
costs, transaction costs, taxes, and increasing costs of
external financing, risk management at the firm level
(as opposed to risk management by stock owners)
represents a means to increase firm value to the benefit
of the shareholders. pdf
