A Review Of The Rationales For Corporate Risk Management: Fashion Or The Need?

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Executive Summary

This paper presents the extensive literature survey based both on theoretical rationales for hedging as well as the empirical evidence that support the implications of the theory regarding the arguments for the corporate risk management relevance and its influence on the company's value. The survey of literature presented in this paper has revealed that there are two chief classes of rationales for corporate decision to hedge - maximization of shareholder value or maximization of managers' private utility. If corporate hedging decisions are capable of increasing firm values, they can do so by reducing the volatility of cash flows.

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