Question

please briefly discuss rethinking risk management by Rene M. Stulz ???

Answer 1

According to the “Rethinking risk management” theory mentioned by Rene M. Stulz, the corporate risk management is always not to take risk to provide maximum benefits to the shareholders but make an attempt to have economical risk and reduce the negative variances from various profit-making points. The efforts of the management is not always to have cash flows by having risks and bring financial harms but brings protection against the all costly and low cash generator projects and have safe and smooth finance strategy. Taking less “out-of-the-money put options” to have a limit on downside risk.

The management have to capture the optimal capital structure and its ownership which will bring higher “Corporate debt capacity” for company through eliminating risks and extra costs which disturbs the financial position. The managements rethinking theory will encourages a larger equity base for the managers to shield out their financial strategies. The management should be encouraged to have less and selective hedging policy making positive and profit making risk taking policies.