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- Title
Some Determinants of Corporate Risk Aversion.
- Authors
Bickel, J. Eric
- Abstract
In this paper we roughly quantify the degree of risk aversion induced by three rationales for corporate risk management: the cost of financial distress, costly external finance, and the principal-agent relationship between shareholders and management. In so doing, we provide a foundation for the use of corporate utility functions. However, we are unable to fully support the degree of risk aversion reported in the decision analysis literature. Specifically, financial distress and costly external finance appear to induce relatively little risk aversion, while principal-agent concerns lend only partial support to published corporate risk tolerance guidelines.
- Subjects
UTILITY functions; RISK aversion; DECISION making; FINANCIAL crises; STOCKHOLDERS; RISK exposure
- Publication
Decision Analysis, 2006, Vol 3, Issue 4, p233
- ISSN
1545-8490
- Publication type
Article
- DOI
10.1287/deca.1060.0080