Our study of 267 U.S. firms shows that improved environmental risk management is associated with a lower cost of capital. Our findings provide an alternative perspective on the environmental‐economic performance relationship, which has been dominated by the view that improvements in economic performance stem from better resource utilization. Firms also benefit from improved environmental risk management through a reduction in their cost of equity capital, a shift from equity to debt financing, and higher tax benefits associated with the ability to add debt. These findings help build better theory regarding the outcomes of strategic improvements in environmental risk management. Copyright © 2008 John Wiley & Sons, Ltd.

We develop and test a theory explaining the equilibrium matching of issuers and underwriters. We assume that issuers and underwriters associate by mutual choice, and that underwriter ability and issuer quality are complementary. Our model implies that matching is positive assortative, and that matches are based on firms' and underwriters' relative characteristics at the time of issuance. The model predicts that the market share of top underwriters and their average issue quality varies inversely with issuance volume. Various cross-sectional patterns in underwriting spreads are consistent with equilibrium matching. We find strong empirical confirmation of our theory. Copyright 2005 by The American Finance Association.

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We examine the value consequences of corporate social responsibility through the lens of institutional shareholders. We find a sharp asymmetry between corporate policies that mitigate the firm’s exposure to environmental risk and those that enhance its perceived environmental friendliness (“greenness”). Institutional investors shun stocks with high environmental risk exposure, which we show have lower valuations, as predicted by risk management theory. These findings suggest that corporate environmental policies that mitigate environmental risk exposure create shareholder value. In contrast, firms that increase greenness do not create shareholder value and are also shunned by institutional investors.

We show that managerial overconfidence, which h as been foun d to i nfluence a num ber of corporate financial decisions, also affects corporate risk management. We find tha t managers i ncrease their speculative activities using derivatives following s peculative gains, while they do not reduce their speculative activities following speculative losses. This asymmetric response follows from selective selfattribution: successes tend to be attr ibuted to one's own skill, while failu res tend to be attributed to ba d luck. Thus, our results show that managerial behavioral biases can also impact corporate risk management.November 20, 2011 JEL Classification: G11; G14; G32; G39 Keywords: corporate risk management; behavioral biases; managerial overconfidence; speculation  We thank Alex Butler, Sudheer Chava, Louis Ederington, Gary Emery, Dirk Jenter, Swami Kalpathy, Leonid Kogan, Shimon Kogan, Nan Li, Gustavo Manso, Bill Megginson, Darius Miller, Jun Pan, Roberto Rigobon, Martin Ruckes, Antoinette Schoar, Oliver Spalt, Per Stromberg, Rex Thomson, Pradeep Yadav, and seminar participants at MIT, University of Oklahoma, Humboldt University, University of Texas at Dallas, Southern Methodist University, Texas Christian University, ESMT Berlin, 2008 FMA Europe meetings, 2008 FMA meetings, 2009 EFA meetings and 2010 AFA meetings for valuable discussions and comments. We are grateful to Ted Reeve for providing us with his derivatives surveys of gold mining firms and Leung Kam Ming for excellent research assistance. We also thank Anthony May and Jesus Salas for valuable assistance. This research has been supported by the CRC 649 of the German Science Foundation. A part of this research was conducted when Chitru Fernando was a visiting professor at the SMU Cox School of Business. He thanks SMU for their gracious hospitality and the National Science Foundation (Grant No. ECS-0323620) for financial support. We are responsible for any remaining errors. Managerial Biases and Corporate Risk Management AbstractWe show t hat managerial overconfidence, wh ich has been found to influence a num ber of corporate financial decisions, also affects corp orate risk m anagement. We find that m anagers increase their speculative activities using derivatives following speculative gains, while they do not reduce their spe culative activities following speculative losses. Th is asymmetric response follows from selective self-attribution: successes tend to be attributed to one's own skill, while failures tend to be attributed to ba d luck. Thu s, our results show that managerial behavioral biases can also impact corporate risk management.

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, and two anonymous reviewers of the Hong Kong Research Grants Council for their comments and suggestions. We are especially grateful to an anonymous JFE referee for helping to substantially improve the paper. We are also grateful to Ted Reeve for providing us with his derivative surveys of gold mining firms. The Research Grants Council of Hong Kong provided financial support for this project, and Harry Kam Ming Leung provided excellent research assistance. We are responsible for any remaining errors.