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Risk Shifting Versus Risk Management
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Book Synopsis Risk Shifting Versus Risk Management by : Joshua Rauh
Download or read book Risk Shifting Versus Risk Management written by Joshua Rauh and published by . This book was released on 2007 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: The asset allocation of defined benefit pension plans is a setting where both risk shifting and risk management incentives are likely be present. Empirically, firms with poorly funded pension plans and weak credit ratings allocate a greater share of pension fund assets to safer securities such as government debt and cash, whereas firms with well-funded pension plans and strong credit ratings invest more heavily in equity. These relations hold both in the cross-section and within firms and plans over time. The incentive to limit costly financial distress plays a considerably larger role than risk shifting in explaining variation in pension fund investment policy among U.S. firms.
Book Synopsis Risk Shifting Versus Risk Management by : Joshua D. Rauh
Download or read book Risk Shifting Versus Risk Management written by Joshua D. Rauh and published by . This book was released on 2010 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: The asset allocation of defined benefit pension plans is a setting where both risk shifting and risk management incentives are likely be present. Empirically, firms with poorly funded pension plans and weak credit ratings allocate a greater share of pension fund assets to safer securities such as government debt and cash, whereas firms with well-funded pension plans and strong credit ratings invest more heavily in equity. These relations hold both in the cross-section and within firms and plans over time. The incentive to limit costly financial distress plays a considerably larger role than risk shifting in explaining variation in pension fund investment policy among U.S. firms.
Book Synopsis Risk Shifting Versus Risk Management in Debt Rollover by : Bo Li
Download or read book Risk Shifting Versus Risk Management in Debt Rollover written by Bo Li and published by . This book was released on 2016 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: Does risk shifting incentives or risk management incentives dominate when firms rollover large amounts of maturing debt? The empirical evidence supports the risk management hypothesis by identifying a hump-shaped relation between long-term debt maturity and firm risk. Using difference-in-differences approach that relies on the ex-ante variation in long-term debt at the onset of the crisis of 2007, I find that firms with greater exposure to rollover risk increase R&D intensive investments. This paper high-light that the incentive to avoid financial distress plays a significant role in explaining the riskiness of investments.
Book Synopsis Managerial Risk Taking Incentives and Corporate Pension Policy by : Divya Anantharaman
Download or read book Managerial Risk Taking Incentives and Corporate Pension Policy written by Divya Anantharaman and published by . This book was released on 2013 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: Theory predicts that stockholders of firms with defined-benefit pension plans will engage in risk-shifting by underfunding plans and investing plan assets in risky securities, as their firms approach distress. The empirical evidence so far has, however, been consistent more with risk-management than risk-shifting. We test whether the compensation incentives of top management affect the extent of risk-shifting versus risk-management behavior in pension plans. We find that risk-shifting through pension underfunding is stronger with compensation structures that create high wealth-risk sensitivity (vega), and weaker with high wealth-price sensitivity (delta). These relationships hold across firms and within firms and managers over time. We find consistent but weaker results with risk-shifting through pension asset allocation to risky securities. While both CEO and CFO incentives affect pension strategy, CFO incentives dominate, suggesting that pension decisions fall within the CFO's domain. We find also that risk-shifting through pension underfunding is lower when CFOs' own pensions are larger. Overall, these findings show that top managers' compensation structure is an important driver of corporate pension policy; they also highlight firms within which the moral hazard concerns fueled by Pension Benefit Guaranty Corporation insurance are most relevant.
Download or read book Risk vs. Risk written by John D. Graham and published by Harvard University Press. This book was released on 2009-07-01 with total page 353 pages. Available in PDF, EPUB and Kindle. Book excerpt: We see the stories in the newspaper nearly every day: a drug hailed as a breakthrough treatment turns out to cause harmful side effects; controls implemented to reduce air pollution are shown to generate hazardous solid waste; bans on dangerous chemicals result in the introduction of even more risky substitutes. Could our efforts to protect our health and the environment actually be making things worse? In Risk versus Risk, John D. Graham, Jonathan Baert Wiener, and their colleagues at the Harvard Center for Risk Analysis marshal an impressive set of case studies which demonstrate that all too often our nation's campaign to reduce risks to our health and the environment is at war with itself.
Book Synopsis Do Firms Engage in Risk-Shifting? Empirical Evidence by : Erik Gilje
Download or read book Do Firms Engage in Risk-Shifting? Empirical Evidence written by Erik Gilje and published by . This book was released on 2016 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: I empirically test whether firms engage in risk-shifting. Contrary to what risk-shifting theory predicts, I find that firms reduce investment risk when they approach financial distress. To identify the effect of distress on risk-taking, I use a natural experiment with exogenous changes to leverage. Risk reduction is most prevalent among firms that have shorter maturity debt, bank debt, and tighter bank loan financial covenants. These findings suggest that debt composition and financial covenants serve as important mechanisms to mitigate debt-equity agency conflicts, such as risk-shifting, that are not explicitly contracted on.
Book Synopsis Professional's Handbook of Financial Risk Management by : Lev Borodovsky
Download or read book Professional's Handbook of Financial Risk Management written by Lev Borodovsky and published by Elsevier. This book was released on 2000-02-25 with total page 817 pages. Available in PDF, EPUB and Kindle. Book excerpt: Professional's Handbook of Financial Risk Management is a major reference work in finance. A complete practical reference book covering all aspects of financial risk management including an in-depth look at operational risk management, regulation, risk-based capital, and risk adjusted performance measurement. The book focuses on practical financial risk management techniques and solutions, and is designed to guide the risk professional step-by-step through the implementation of a firm-wide risk management framework. This book covers the various roles of the risk management function. Rather than describing every possible role in exhaustive detail, the authors have provided a story line for each of the discussed topics, including practical issues that a risk manager needs to consider when tackling the subject, possible solutions to difficulties that might be encountered, background knowledge that is essential to know, and more intricate practices and techniques that are being used. By providing these fundamentals, the novice risk professional can gain a thorough understanding of the topic in question while the more experienced professional can use some of the more advanced concepts within the book. Thus the book can be used to broaden your own knowledge of the risk world, both by familiarizing yourself with areas in which you lack experience and by enhancing your knowledge in areas that you already have expertise. All authors are leaders in their field who between them have the expertise and knowledge, both practical and theoretical, to produce this definitive risk management guide. The editors of this book, Marc Lore and Lev Borodovsky, are senior financial risk managers at Sanwa Bank (International) London, and Credit Suisse First Boston, USA respectively. They also run The Global Association of Risk Professionals (GARP), the industry association for financial risk management practitioners and researchers. Endorsed by GARP - Global Association of Risk Professionals Authored and edited by leading financial markets risk professionals International in coverage; the concepts and methods covered are not specific to any country or institution, but rather to the risk management profession as a whole
Book Synopsis Investment under Uncertainty by : Robert K. Dixit
Download or read book Investment under Uncertainty written by Robert K. Dixit and published by Princeton University Press. This book was released on 2012-07-14 with total page 484 pages. Available in PDF, EPUB and Kindle. Book excerpt: How should firms decide whether and when to invest in new capital equipment, additions to their workforce, or the development of new products? Why have traditional economic models of investment failed to explain the behavior of investment spending in the United States and other countries? In this book, Avinash Dixit and Robert Pindyck provide the first detailed exposition of a new theoretical approach to the capital investment decisions of firms, stressing the irreversibility of most investment decisions, and the ongoing uncertainty of the economic environment in which these decisions are made. In so doing, they answer important questions about investment decisions and the behavior of investment spending. This new approach to investment recognizes the option value of waiting for better (but never complete) information. It exploits an analogy with the theory of options in financial markets, which permits a much richer dynamic framework than was possible with the traditional theory of investment. The authors present the new theory in a clear and systematic way, and consolidate, synthesize, and extend the various strands of research that have come out of the theory. Their book shows the importance of the theory for understanding investment behavior of firms; develops the implications of this theory for industry dynamics and for government policy concerning investment; and shows how the theory can be applied to specific industries and to a wide variety of business problems.
Book Synopsis Powering the Digital Economy: Opportunities and Risks of Artificial Intelligence in Finance by : El Bachir Boukherouaa
Download or read book Powering the Digital Economy: Opportunities and Risks of Artificial Intelligence in Finance written by El Bachir Boukherouaa and published by International Monetary Fund. This book was released on 2021-10-22 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper discusses the impact of the rapid adoption of artificial intelligence (AI) and machine learning (ML) in the financial sector. It highlights the benefits these technologies bring in terms of financial deepening and efficiency, while raising concerns about its potential in widening the digital divide between advanced and developing economies. The paper advances the discussion on the impact of this technology by distilling and categorizing the unique risks that it could pose to the integrity and stability of the financial system, policy challenges, and potential regulatory approaches. The evolving nature of this technology and its application in finance means that the full extent of its strengths and weaknesses is yet to be fully understood. Given the risk of unexpected pitfalls, countries will need to strengthen prudential oversight.
Book Synopsis Dynamic Risk Shifting, Costly Risk Adjustment, and Asset Pricing by : Zhiyao Chen
Download or read book Dynamic Risk Shifting, Costly Risk Adjustment, and Asset Pricing written by Zhiyao Chen and published by . This book was released on 2011 with total page 74 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Risk-shifting, Regulation, and Government Assistance by : Padma Sharma
Download or read book Risk-shifting, Regulation, and Government Assistance written by Padma Sharma and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Revisiting Risk-Weighted Assets by : Vanessa Le Leslé
Download or read book Revisiting Risk-Weighted Assets written by Vanessa Le Leslé and published by International Monetary Fund. This book was released on 2012-03-01 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we provide an overview of the concerns surrounding the variations in the calculation of risk-weighted assets (RWAs) across banks and jurisdictions and how this might undermine the Basel III capital adequacy framework. We discuss the key drivers behind the differences in these calculations, drawing upon a sample of systemically important banks from Europe, North America, and Asia Pacific. We then discuss a range of policy options that could be explored to fix the actual and perceived problems with RWAs, and improve the use of risk-sensitive capital ratios.
Book Synopsis Offsetting the Incentives by : Suleyman Basak
Download or read book Offsetting the Incentives written by Suleyman Basak and published by . This book was released on 2007 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: Money managers are rewarded for increasing the value of assets under management, and predominantly so in the mutual fund industry. This gives the manager an implicit incentive to exploit the well-documented positive fund-flows to relative-performance relationship by manipulating her risk exposure. In a dynamic portfolio framework, we show that as the year-end approaches, the ensuing convexities in the manager's objective induce her to closely mimic the index, relative to which her performance is evaluated, when the fund's year-to-date return is sufficiently high. As her relative performance falls behind, she chooses to deviate from the index by either increasing or decreasing the volatility of her portfolio. The maximum deviation is achieved at a critical level of underperformance. It may be optimal for the manager to reach such deviation via selling the risky asset despite its positive risk premium. Under multiple sources of risk, with both systematic and idiosyncratic risks present, we show that optimal managerial risk shifting may not necessarily involve taking on any idiosyncratic risk. Costs of misaligned incentives to investors resulting from the manager's policy are economically significant. We then demonstrate how a simple risk management practice that accounts for benchmarking can ameliorate the adverse effects of managerial incentives.
Book Synopsis New Perspectives on Regulation by : David A. Moss
Download or read book New Perspectives on Regulation written by David A. Moss and published by The Tobin Project. This book was released on 2009 with total page 169 pages. Available in PDF, EPUB and Kindle. Book excerpt: As an experiment in reconnecting academia to the broader democracy, this work is designed to invigorate public policy debate by rededicating academic work to the pursuit of solutions to society's great problems.
Book Synopsis Health Care Risk Management by : Gary P. Kraus
Download or read book Health Care Risk Management written by Gary P. Kraus and published by Beard Books. This book was released on 2000 with total page 350 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Competition Theory of Risk Management Failures by : Matthieu Bouvard
Download or read book Competition Theory of Risk Management Failures written by Matthieu Bouvard and published by . This book was released on 2019 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study a model in which firms compete preemptively for trading opportunities and risk management introduces latency in trading. As the time pressure faced by firms is endogenous to risk management choices, strategic complementarities can trigger a “race to the bottom” where prioritizing trade execution over risk management is individually optimal, but collectively inefficient. This generates an inverse relationship between trading volume/immediacy and efficiency of risk allocation. Different from theories where financing frictions or risk shifting cause a lack of risk management, ours predicts the pathology of risk management failures to be the trifecta of (1) “boom” markets, (2) time-based competition, and (3) firms in which risk assessment is time-consuming. We discuss merits and drawbacks of taxation, fines, and market design as possible countermeasures.
Book Synopsis Risk Management by : Michael Frenkel
Download or read book Risk Management written by Michael Frenkel and published by Springer Science & Business Media. This book was released on 2013-06-29 with total page 427 pages. Available in PDF, EPUB and Kindle. Book excerpt: Dealing with all aspects of risk management that have undergone significant innovation in recent years, this book has been written for academics as well as practitioners, in particular finance specialists. It is unique in bringing together such a wide array of experts and correspondingly offers a complete coverage of recent developments. The emphasis is placed on highlighting the link between the academic literature and practical issues related to the organization of the risk management function.
