TY  - JOUR
ID  - publications16480
UR  - http://tse-fr.eu/pub/27659
IS  - n° 2
A1  - Amaya, Diego
A1  - Gauthier, Geneviève
A1  - Léautier, Thomas-Olivier
N2  - This article develops a dynamic risk management model to determine a firm's optimal risk management strategy. This strategy has two elements. First, for low-leverage values, the firm fully hedges its operating cash flow exposure, due to the convexity of its cost of capital. When leverage exceeds a very high threshold, the firm gambles for resurrection and stops hedging. Second, the firm manages its capital structure through dividend distributions and investment. When leverage is low, the firm replaces depreciated assets, fully invests in opportunities if they arise, and distribute dividends, all of these together to achieve its optimal capital structure. As leverage increases, the firm stops paying dividends, while fully investing. After a certain leverage, the firm also reduces investment until it stops investing completely. The model predictions are consistent with empirical observations
VL  - vol. 82
TI  - Dynamic risk management
AV  - public
EP  - 399
Y1  - 2015/06//
PB  - Wiley
JF  - Journal of Risk and Insurance
KW  - Hedging (Finance)
KW  - Capital costs
KW  - investments
KW  - Capital structure
KW  - Financial risk management
SN  - 0022-4367
SP  - 359
ER  -