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Measuring Corporate Liquidity Risk

Jankensgård, Håkan LU (2010) In Journal of Applied Corporate Finance 22(4). p.103-109
Abstract
Cash Flow-at-Risk (CFaR) is a risk measure that conveys information on the shortfall in

cash flow, associated with a certain probability, a firm could experience over a certain time

period. However, to provide information on outcomes that are identified as costly by the

risk management literature, in particular underinvestment due to financing constraints, a

risk measure needs to make explicit reference to the firm’s presumed access to external

sources of funding. What is called for is thus a framework in which cash flow-based

measures of risk are conditional on the firm’s debt capacity. The group of risk measures

presented in this paper incorporates this information. They... (More)
Cash Flow-at-Risk (CFaR) is a risk measure that conveys information on the shortfall in

cash flow, associated with a certain probability, a firm could experience over a certain time

period. However, to provide information on outcomes that are identified as costly by the

risk management literature, in particular underinvestment due to financing constraints, a

risk measure needs to make explicit reference to the firm’s presumed access to external

sources of funding. What is called for is thus a framework in which cash flow-based

measures of risk are conditional on the firm’s debt capacity. The group of risk measures

presented in this paper incorporates this information. They render hedgeable magnitudes

that can inform risk management strategies by indicating if a hedge is likely to mitigate

costly consequences of volatility by acting as a substitute for equity capital. (Less)
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Contribution to journal
publication status
published
subject
in
Journal of Applied Corporate Finance
volume
22
issue
4
pages
103 - 109
publisher
John Wiley & Sons
ISSN
1745-6622
DOI
10.1111/j.1745-6622.2010.00306.x
language
English
LU publication?
yes
id
b7eebfd0-13cd-422c-b5a2-a546e982ad07 (old id 4064552)
date added to LUP
2013-09-27 11:23:41
date last changed
2016-04-16 06:33:56
@article{b7eebfd0-13cd-422c-b5a2-a546e982ad07,
  abstract     = {Cash Flow-at-Risk (CFaR) is a risk measure that conveys information on the shortfall in<br/><br>
cash flow, associated with a certain probability, a firm could experience over a certain time<br/><br>
period. However, to provide information on outcomes that are identified as costly by the<br/><br>
risk management literature, in particular underinvestment due to financing constraints, a<br/><br>
risk measure needs to make explicit reference to the firm’s presumed access to external<br/><br>
sources of funding. What is called for is thus a framework in which cash flow-based<br/><br>
measures of risk are conditional on the firm’s debt capacity. The group of risk measures<br/><br>
presented in this paper incorporates this information. They render hedgeable magnitudes<br/><br>
that can inform risk management strategies by indicating if a hedge is likely to mitigate<br/><br>
costly consequences of volatility by acting as a substitute for equity capital.},
  author       = {Jankensgård, Håkan},
  issn         = {1745-6622},
  language     = {eng},
  number       = {4},
  pages        = {103--109},
  publisher    = {John Wiley & Sons},
  series       = {Journal of Applied Corporate Finance},
  title        = {Measuring Corporate Liquidity Risk},
  url          = {http://dx.doi.org/10.1111/j.1745-6622.2010.00306.x},
  volume       = {22},
  year         = {2010},
}