Corporate Risk Management in the Multinational Firm

Abstract

AbstractMultinational companies are nowadays operating in a highly globalized and increasingly integrated business environment. They need to cope with rising volatilities, especially in currency markets, as well as a rising prevalence of structural breaks in all markets in which they operate. This chapter reviews the academic literature on corporate risk management activities as well as the limitations of academic research from a practitioner's perspective. Starting from a general discussion of the corporate risk universe, the chapter examines the contributions on risk exposure measurement and risk mitigation before turning attention to value-based rationales for firm-level risk management. Next, the chapter shows that the academic literature has provided few insights on two aspects of key relevance for corporate risk managers: (1) the proper mixing of financial and operative hedging strategies when dealing with currency risk exposures and (2) the maturity of corporate hedges. The chapter closes with a review of the norms and regulations governing the risk management function in the United States, United Kingdom, and Germany.