More than thirty leading scholars and finance practitioners discuss the theory and practice of using enterprise-risk management (ERM) to increase corporate values. ERM is the corporate-wide effort to manage the right-hand side of the balance sheeta firm's total liability structure-in ways that enable management to make the most of the firm's assets. While typically working to stabilize cash flows, the primary aim of a well-designed risk management program is not to smooth corporate earnings, but to limit the possibility that surprise outcomes can threaten a company's ability to fund its major investments and carry out its strategic plan. Contributors summarize the development and use of risk management products and their practical applications. Case studies involve Merck, British Petroleum, the American airline industry, and United Grain Growers, and the conclusion addresses a variety of topics that include the pricing and use of certain derivative securities, hybrid debt, and catastrophe bonds.
Contributors: Tom Aabo (Aarhus School of Business); Albéric Braas and Charles N. Bralver (Oliver, Wyman&Company); Keith C. Brown (University of Texas at Austin); David A. Carter (Oklahoma State University); Christopher L. Culp (University of Chicago); Neil A. Doherty (University of Pennsylvania); John R. S. Fraser (Hyrdo One, Inc.); Kenneth R. French (University of Chicago); Gerald D. Gay (Georgia State University); Jeremy Gold (Jeremy Gold Pensions); Scott E. Harrington (University of South Carolina); J. B. Heaton (Bartlit Beck Herman Palenchar&Scott LLP); Joel Houston (University of Florida); Nick Hudson (Stern Stewart&Co.); Christopher James (University of Florida); A. John Kearney and Judy C. Lewent (Merck&Co., Inc.); Robert C. Merton and Lisa K. Meulbroek (Harvard Business School); Merton H. Miller (University of Chicago); Jouahn Nam (Pace University); Andrea M. P. Neves (CP Risk Management LLC); Brian W. Nocco (Nationwide Insurance); André F. Perold (Harvard Business School); S. Waite Rawls III (Continental Bank); Kenneth J. Risko (Willis Risk Solutions); Angelika Schöchlin (University of St. Gallen); Betty J. Simkins (Oklahoma State University); Donald J. Smith (Boston University); Clifford W. Smith Jr. (University of Rochester); Charles W. Smithson (Continental Bank); René M. Stulz (Ohio State University); D. S
All the articles that comprise this book were first published in the Journal of Applied Corporate Finance. Morgan Stanley's ownership of the journal is a reflection of its commitment to identifying outstanding academic research and promoting its application in the practicing corporate and investment communities.
About the Author
Table of Contents
Part I: The Products
1. Financial Innovation: Achievements and Prospects, by Merton H. Miller
2. The Evolution of Risk Management Products, by S. Waite Rawls III and Charles W. Smithson
3. The Revolution in Corporate Risk Management: A Decade of Innovations in Pro cess and Products, by Christopher L. Culp
4. A Senior Manager's Guide to Integrated Risk Management, by Lisa K. Meulbroek
Part II: Corporate Uses of the Products
5. Rethinking Risk Management, by René M. Stulz
6. An Analysis of Trading Profi ts: How Most Trading Rooms Really Make Money, by Albéric Braas and Charles N. Bralver
7. Theory of Risk Capital in Financial Firms, by Robert C. Merton and André F. Perold
8. Value At Risk: Uses and Abuses, by Christopher L. Culp, Merton H. Miller, and Andrea M. P. Neves
9. Allocating Shareholder Capital to Pension Plans, by Robert C. Merton
10. The Uses and Abuses of Finite Risk Reinsurance, by Christopher L. Culp and J. B. Heaton
11. Does Risk Management Add Value? A Survey of the Evidence, by Charles W. Smithson and Betty J. Simkins
Part III: Practitioner Perspectives: Case Studies and Roundtables
12. Identifying, Measuring, and Hedging Currency Risk at Merck, by Judy C. Lewent and A. John Kearney
13. Corporate Insurance Strategy: The Case of British Petroleum, by Neil A. Doherty and Clifford W. Smith, Jr.
14. Hedging and Value in the U.S. Airline Industry, by David A. Carter, Daniel A. Rogers, and Betty J. Simkins
15. Enterprise Risk Management: Theory and Practice, by Brian W. Nocco and René M. Stulz
16. The Rise and Evolution of the Chief Risk Officer: Enterprise Risk Management at Hydro One, by Tom Aabo, John R. S. Fraser, and Betty J. Simkins
17. University of Georgia Roundtable on Enterprise-Wide Risk Management, Atlanta, Georgia, November 18, 2002
18. Morgan Stanley Roundtable on Enterprise Risk Management and Corporate Strategy, New York City, June 21, 2005
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Richard Brealey, London Business School, former adviser to the Bank of England, and coauthor of Principles of Corporate Finance
No other finance journal compares to the Journal of Applied Corporate Finance in its ability to disseminate cutting-edge academic research to students and corporate practitioners.
William Megginson, University of Oklahoma