TY  - JOUR
AU  - Froot,Kenneth A.
AU  - Scharfstein,David S.
AU  - Stein,Jeremy C.
TI  - Risk Management:  Coordinating Corporate Investment and Financing Policies
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4084
PY  - 1992
Y2  - May 1992
UR  - http://www.nber.org/papers/w4084
L1  - http://www.nber.org/papers/w4084.pdf
N1  - Author contact info:
Kenneth A. Froot
Graduate School of Business
Harvard University
Soldiers Field
Boston, MA 02163
Tel: 617/495-6677
Fax: 617/496-7357
E-Mail: kfroot@hbs.edu

David S. Scharfstein
Harvard Business School
Baker 239
Soldiers Field
Boston, MA 02163
Tel: 617/496-5067
Fax: 617/496-8443
E-Mail: dscharfstein@hbs.edu

Jeremy C. Stein
Department of Economics
Harvard University
Littauer 209
Cambridge, MA  02138
Tel: 617/496-6455
Fax: 617/496-7352
E-Mail: jeremy_stein@harvard.edu
AB  - This paper develops a general framework for analyzing corporate risk management policies. We begin by observing that if external sources of finance are more costly to corporations than internally generated funds, there will typically be a benefit to hedging: hedging adds value to the extent that it helps ensure that a corporation has sufficient internal funds available to take advantage of attractive investment opportunities. We then argue that this simple observation has wide-ranging implications for the design of risk management strategies. We delineate how these strategies should depend on such factors as shocks to investment and financing opportunities. We also discuss exchange-rate hedging strategies for multinationals. as well as strategies involving "nonlinear" instruments like options.
ER  -