Financial risk management and enterprise value creation: Evidence from non‐ferrous metal listed companies in China

Abstract

Purpose

The purpose of this paper is to explore whether financial risk management (FRM) can improve enterprise value in China's current economic environment.

Design/methodology/approach

A theoretical model is constructed which decomposes firms by different combinations expressed by cash flow and risk scale. Then, regression testing is conducted, taking the non‐ferrous metal industry in Shanghai and Shenzhen Stock Exchanges (2002‐2008) as the sample, and using the fixed effects model.

Findings

The results support the hypothesis that risk management can raise enterprise value. It is also found that risk management behavior has different representations among firms with different characteristics.

Originality/value

This paper has modified Boyer's mean‐variance model and then testified to the effectiveness of FRM. It also explores the influence of enterprise characteristics on the efficiency of risk management, providing some theoretic support for China's enterprises, which could borrow ideas from successful experience.

Citation

Wang, P., Li, S. and Zhou, J. (2010), "Financial risk management and enterprise value creation: Evidence from non‐ferrous metal listed companies in China", Nankai Business Review International, Vol. 1 No. 1, pp. 5-19. https://doi.org/10.1108/20408741011032836