The interaction of risk management tools: Financial hedging, corporate diversification and liquidity

Jiang, Jiaqi; Feng, Yun

doi:10.1002/ijfe.1913

Cited by 11 publications

(8 citation statements)

References 73 publications

(108 reference statements)

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“…This paper aligns closely with Wong (2007), Gamba and Triantis (2014), and Jiang and Feng (2020) who focused on integrated risk management. However, they fail to differentiate between internal flexibility and hedging instruments.…”

Section: Introductionsupporting

confidence: 69%

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Optimal hedging in the presence of internal flexibility

Jiang

Feng

2022

Int. J Fin Econ

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Internal flexibility aids in risk management and has a broader application than hedging instruments. This paper demonstrates how optimal hedging policies are affected by it. We develop a dynamic risk management model to capture financial and operational decisions. We first show that internal flexibility reduces the marginal value of hedging instruments. As a result, optimal financial hedging is selective and dependent on investment opportunities. These opportunities account for the majority of the difference between hedged and unhedged firms. By incorporating internal flexibility, the model becomes more realistic but also generates a complex interaction between financial hedging and marketing strategy. During the growth phase, hedging instruments are partially substitutive but have a synergistic effect on investment. In the mature or declining phase, the remedial effect of marketing strategy maintains investment, thereby increasing operating risk and the marginal value of financial hedging. These results are applicable to firms free of agency conflicts and provide a solid theoretical basis for future empirical tests. We advise that scholars thoroughly examine internal flexibility and development stages in the process.

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Section: Introductionsupporting

confidence: 69%

“…Wong (2007) investigated financial and operational hedging in a static environment. Gamba and Triantis (2014) and Jiang and Feng (2020) assumed fixed capital. We incorporated intertemporal liquidity and capital decisions because internal flexibility is important for risk management (Disatnik et al, 2014;Wei et al, 2017).…”

Section: Introductionmentioning

confidence: 99%

Optimal hedging in the presence of internal flexibility

Jiang

Feng

2022

Int. J Fin Econ

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“…Similarly, the research of Kiambati (2020) and Sathyamoorthi et al (2020) demonstrated that there is a relationship between risk management and profitability or shareholder market value among the commercial banks. Furthermore, Jiang and Feng (2020) emphasize the importance of risk management capabilities which is hardly observable but contributes much to firm value. Thus, our third hypothesis is worth considering:H2 Risk management positively influences the bank's performance .…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

Financial innovation characteristics and banking performance: The mediating effect of risk management

Zouari‐Hadiji

2021

Int. J Fin Econ

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Several studies dealing with the direct relationship between financial innovation and bank performance have reported mixed results. The risk management incurred by the bank, as a mediating variable in this relationship, has not been investigated by researchers. In this context, the present work contribution consists in highlighting the important role of risk management to explain the interaction between financial innovation characteristics and bank performance. The present work is conducted concerning a sample involving seven privately owned Tunisian banks, relevant to the period ranging from 2009 to 2018. The hierarchical multiple regressions analysis turns out to indicate the noticeable effect of risk management on the relationships binding financial innovation characteristics (the risk level, innovations' horizon and specificity) and banking performance. In fact, private Tunisian banks appear to respond positively to the banking products and service-associated technological developments, in a bid to effectively manage bank risks and promote banking performance.

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“…The advantages and features of the expert approach to risk assessment [28,36] and mathematical methods to identify and assess risks are the most often discussed topics in the literature [37][38][39][40]. The development of mathematical tools that allows one to form an optimal trajectory for managing several risks simultaneously is given in [41].…”

Section: Literature Reviewmentioning

confidence: 99%

Developing a Numerical Method of Risk Management Taking into Account the Decision-Maker’s Subjective Attitude Towards Multifactorial Risks

et al. 2023

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Risk involves identifying several options that the decision-maker can opt for while making a choice either in the direction of risk or reliability. In this approach, risk is defined as the action of the subject which will lead to the loss or guaranteed safety of what has been achieved. As the uncertainty of the external business environment increases for companies, the task of managing risks both individually and as a set of risks becomes more and more relevant. The purpose of this study is to solve the problem of managing multifactorial risks using mathematical methods for determining the optimal risk management trajectories separately for each factor. To determine the optimal risk management trajectories for each factor, a numerical method is used based on the choice of the most effective direction, which is defined as the ratio of risk change to cost change. An information system prototype has been created that can support the management of a set of risks. Approbation of the information system was carried out on an example containing two conceptual risk factors. The proposed prototype builds a three-dimensional risk map by interpolating the risk matrix entered by the risk manager using an additive–multiplicative aggregation procedure, as well as optimal risk management trajectories for all entered risk factors.

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The interaction of risk management tools: Financial hedging, corporate diversification and liquidity

Cited by 11 publications

References 73 publications

Optimal hedging in the presence of internal flexibility

Optimal hedging in the presence of internal flexibility

Financial innovation characteristics and banking performance: The mediating effect of risk management

Developing a Numerical Method of Risk Management Taking into Account the Decision-Maker’s Subjective Attitude Towards Multifactorial Risks

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