财务风险管理：这是一个增值活动？外文翻译.docVIP

外文翻译 Financial risk management: is it a value-adding activity? Material source: Emerald　　 　　Author: Richard Fairchild Abstract Considers whether financial risk management is value-adding. Although risk management can reduce total risk, this may not affect the cost of capital or firm value. Well-diversified investors have already eliminated all of the specific risk, and risk-management may be seen as a zero NPV activity at best, and at worst, a value-reducing activity. However, there is a role for risk management. Reduction of total risk may reduce the expected costs of financial distress, hence increasing expected cashflows. This increases firm value. Presents a method of investment appraisal that takes account of total risk through expected financial distress costs. Such a method can result in three possible decisions relating to a new project; reject the project invest in the project; and risk-manage; or invest in the project but do not risk-manage. Finally, presents worked examples. Background When considering a firm’s financial risk management activities, we may ask two questions; Why do firms engage in such activities, and how do they do it? How firms engage in risk-management has been extensively considered. Methods typically involve combining financial instruments such as shares, bonds, options and futures, in order to obtain a desired payoff profile (see Smith and Smithson (1998) for an excellent analysis). In this paper, we consider the more controversial question; why bother with financial risk-management? Is financial risk-management value adding? Shapiro and Titman (1998) consider this question of whether risk management is desirable. A firm’s total risk consists of two elements; market risk (which measures the sensitivity of the firm’s stock price to market-wide movements), and specific risk (which measures the stock price movements which are specific to the firm, and independent of market movements). According to