RT Journal Article
SR 00
ID 10.1111/jori.12025
A1 Amaya, Diego
A1 Gauthier, Geneviève
A1 Léautier, Thomas-Olivier
T1 Dynamic risk management
JF Journal of Risk and Insurance
YR 2015
FD 2015-06
VO vol. 82
IS n° 2
SP 359
OP 399
K1 Hedging (Finance)
K1 Capital costs
K1 investments
K1 Capital structure
K1 Financial risk management
AB 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
PB Wiley
SN 0022-4367
LK https://publications.ut-capitole.fr/id/eprint/16480/
UL http://tse-fr.eu/pub/27659