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What's In This Issue–A Message From The Editor

What's In This Issue–A Message From The Editor In “Behind the Corporate Hedge,” University of Texas law professor Henry Hu argues that current financial discussions of corporate risk management are deficient in at least two important senses. Financial economists’ accounts of risk management fail to take into account significant “information costs” associated with using derivatives, as well as a fundamental ambiguity about what it means for managers to “maximize shareholder value.” Professor Hu notes that this ambiguity stems not only from information problems that can cause a company’s trading price to depart significantly from its “intrinsic value,” but also from management’s uncertainty about how much hedging shareholders expect of them. Both of these problems could be addressed in part through better disclosure of a company’s corporate risk management “philosophy” and policies. In “Incorporating Risk in the Valuation of Offshore Projects,” Donald Lessard challenges the conventional practice of multinational corporations (MNCs) of using higher discount rates when evaluating overseas investments to compensate for the greater perceived risks. Although more volatile, investments in emerging economies typically contribute much less to the volatility of shareholders’ portfolios than domestic projects because of the low correlation of emerging markets’ performance with that of developed economies. The discount rate, according to Lessard, http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Applied Corporate Finance Wiley

What's In This Issue–A Message From The Editor

Journal of Applied Corporate Finance , Volume 9 (3) – Sep 1, 1996
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Publisher
Wiley
Copyright
Copyright © 1996 Wiley Subscription Services, Inc., A Wiley Company
ISSN
1078-1196
eISSN
1745-6622
DOI
10.1111/j.1745-6622.1996.tb00294.x
Publisher site
See Article on Publisher Site

Abstract

In “Behind the Corporate Hedge,” University of Texas law professor Henry Hu argues that current financial discussions of corporate risk management are deficient in at least two important senses. Financial economists’ accounts of risk management fail to take into account significant “information costs” associated with using derivatives, as well as a fundamental ambiguity about what it means for managers to “maximize shareholder value.” Professor Hu notes that this ambiguity stems not only from information problems that can cause a company’s trading price to depart significantly from its “intrinsic value,” but also from management’s uncertainty about how much hedging shareholders expect of them. Both of these problems could be addressed in part through better disclosure of a company’s corporate risk management “philosophy” and policies. In “Incorporating Risk in the Valuation of Offshore Projects,” Donald Lessard challenges the conventional practice of multinational corporations (MNCs) of using higher discount rates when evaluating overseas investments to compensate for the greater perceived risks. Although more volatile, investments in emerging economies typically contribute much less to the volatility of shareholders’ portfolios than domestic projects because of the low correlation of emerging markets’ performance with that of developed economies. The discount rate, according to Lessard,

Journal

Journal of Applied Corporate Finance – Wiley

Published: Sep 1, 1996

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