Theory and Practice of Corporate Risk Management

Stanley Myint and Fabrice Famery

The largest part of this book is devoted to practical considerations on risk management issues in the form of case studies. Before we dig into them, we shall give a brief overview of what the academic literature has to say on this topic. As we go through the literature, it will become obvious that, in this field, theory is very far from practice. We shall point out the major areas of disagreement and give our thoughts on why they are there. We see this chapter as a bridge between theory and practice that we hope can help the academics to make their theories more applicable and the practitioners to better understand the fundamental underpinnings of the risk management practice.


Since this is one of the longer and more complex chapters in the book, we start by summarising the main steps we will take and our main conclusions, and leave those readers who are interested in the details to read on. We start from the original Modigliani–Miller (MM) theorem (see Modigliani and Miller, 1958), which states under which conditions financial policies, including the risk management policy of a company, do not impact its valuation. We then develop a simple two time step

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