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Corporate risk management and firm value: evidence from the UK market

Research output: Contribution to journalJournal articlepeer-review

<mark>Journal publication date</mark>12/2014
<mark>Journal</mark>European Journal of Finance
Issue number12
Number of pages26
Pages (from-to)1161-1186
Publication StatusPublished
Early online date14/03/13
<mark>Original language</mark>English


The paper evaluates the effect of corporate risk management activities on firm value, using a sample of large UK non-financial firms. Following recent changes in financial reporting standards, we are able to collect detailed information on risk management activities from audited financial reports. This enables us to gain a better understanding of risk management practices and to investigate value implications of different types of hedging. Overall 86.88% of the firms in the sample use derivatives to manage at least one type of price risk. The hedging premium is statistically and economically significant for foreign currency derivative users, while we provide weak evidence that interest rate hedging increases firm value. The extent of hedging and the hedging horizon have an impact on the hedging premium, whereas operational risk management activities do not significantly influence the market value of the firm.