A REVIEW ON CORPORATE RISK MANAGEMENT

The derivatives market had a significant growth during last two decades and many non-financial companies started to use them in their risk management programs. In conditions of perfect capital markets, corporate risk management, seen as a part of the financial policy of the company, can't create value. Instead, hedging can increase firm value if one or more assumptions of the perfect capital market are violated. The paper summarizes the existing theory regarding the main rationales for corporate risk management, like the agency conflicts between shareholders and debtholders or managers, the costs of financial distress and the tax reductions. The empirical evidences regarding these positive rationales are also presented. Finally, the main studies on the impact of hedging on company's value are briefly reviewed.