Using an Alternative Estimation Method to Perform Comprehensive Empirical Tests: An Application to Interest Rate Risk-Management

Using an Alternative Estimation Method to Perform Comprehensive Empirical Tests: An Application... Using a sample of 241 U.S. bank holding companies, we test all relevant rationales for corporate risk-management activities related to interest rate risk. Three main results emerge: (1) measurement error and the possibility of multiple influences on the model's proxy variables indicate that the confirmatory factor analysis method can provide a more accurate and comprehensive test of interest rate risk-management rationales than conventional estimation techniques, (2) the corporate risk-management theories most consistently supported are those related to financial distress costs and firm size, and (3) an exogenous factor related to interest rate volatility negatively influences a firm's interest rate risk exposure. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Using an Alternative Estimation Method to Perform Comprehensive Empirical Tests: An Application to Interest Rate Risk-Management

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2004 by Kluwer Academic Publishers
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1023/B:REQU.0000049322.82965.cc
Publisher site
See Article on Publisher Site

Abstract

Using a sample of 241 U.S. bank holding companies, we test all relevant rationales for corporate risk-management activities related to interest rate risk. Three main results emerge: (1) measurement error and the possibility of multiple influences on the model's proxy variables indicate that the confirmatory factor analysis method can provide a more accurate and comprehensive test of interest rate risk-management rationales than conventional estimation techniques, (2) the corporate risk-management theories most consistently supported are those related to financial distress costs and firm size, and (3) an exogenous factor related to interest rate volatility negatively influences a firm's interest rate risk exposure.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Dec 14, 2004

References

  • Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy
    Altman, E. I.
  • The Effects of Bank Mergers and Acquisitions on Small Business Lending
    Berger, A.; Saunders, N. A.; Scalise, J. M.; Udell, G. F.

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