RISK MANAGEMENT AND CORPORATE VALUE

Milan Cupic

Faculty of Economics, University of Kragujevac, Kragujevac, The Republic of Serbia

The paper presents a theoretical framework for assessing the impact of risk management on corporate value. As the relevant factors that determine this impact, the paper analyzes market imperfections and investors’ risk aversion. The results of the present research indicate that risk management contributes to an increase in corporate value if, under the influence of market imperfections, corporate risk exposure is concave. As an expression of market imperfections, the paper analyzes the costs of financial distress, agency costs, and taxation. The results of the research also indicate that the risk management policy should not aim to minimize, but rather optimize risk exposure, by taking into account the costs of risk management, investors’ risk aversion and the competitive advantage a corporation has on the relevant market.

Keywords: risk management, corporate value, risk exposure, market imperfections, risk aversion

JEL Classification: G14, G32

Economic Horizons, 2015, Vol. 17, No 3, pp. 215-228; Published online 25 December 2015; doi:10.5937/ekonhor1503219C
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