Risk sharing, fiduciary duty, and corporate risk attitudes

Risk sharing, fiduciary duty, and corporate risk attitudes

0.00 Avg rating0 Votes
Article ID: iaor20062596
Country: United States
Volume: 1
Issue: 2
Start Page Number: 114
End Page Number: 127
Publication Date: Jun 2004
Journal: Decision Analysis
Authors:
Keywords: decision: studies
Abstract:

In this paper, we consider the problem of determining corporate risk preferences that reflect the preferences of the company's shareholders. Although we do not assume that the company necessarily has a utility function, we can use shareholder risk preferences to place bounds on the firm's risk tolerances and certainty equivalents. Using these bounds with published estimates for individual risk tolerances, we find that large companies with reasonably diversified shareholders should have risk tolerances that are much larger than those typically suggested in the decision analysis literature. We also find that, in contrast with what is commonly assumed in the finance literature, market prices for gambles generally do not reflect the interests of shareholders, and market-value maximization can lead to the selection of dominated alternatives.

Reviews

Required fields are marked *. Your email address will not be published.