Insolvency Risk and Value Maximization: A Convergence between Financial Management and Risk Management
This conceptual paper focuses on the relationship between insolvency, capital structure, and value creation. The aim is twofold: to define risk-based capital measures able to absorb the effects of financial distress and avoid corporate default; and to verify conditions and limits of use of these mea...
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| Format: | Article |
| Language: | English |
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MDPI AG
2021-06-01
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| Series: | Risks |
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| Online Access: | https://www.mdpi.com/2227-9091/9/6/105 |
| _version_ | 1797531729413537792 |
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| author | Alessandro Gennaro |
| author_facet | Alessandro Gennaro |
| author_sort | Alessandro Gennaro |
| collection | DOAJ |
| description | This conceptual paper focuses on the relationship between insolvency, capital structure, and value creation. The aim is twofold: to define risk-based capital measures able to absorb the effects of financial distress and avoid corporate default; and to verify conditions and limits of use of these measures in corporate financial policies. The capital measures based on insolvency risk will be defined by recalling the concepts of Cash Flow-at-Risk and Capital-at-Risk. A first check on the usefulness of these risk-based measures and their consistency with the principle of value maximization is carried out through a simulation model. The scenario analysis allows us to examine how financial and risk policies oriented by insolvency avoidance affect the firm value. According to evidence from the simulation model, these measures appear to be useful in lowering the default risk, but they require a continuous assessment of their impact on the firm value. |
| first_indexed | 2024-03-10T10:48:52Z |
| format | Article |
| id | doaj.art-74e351b4f9e94c418ca61abc64b0ad2f |
| institution | Directory Open Access Journal |
| issn | 2227-9091 |
| language | English |
| last_indexed | 2024-03-10T10:48:52Z |
| publishDate | 2021-06-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Risks |
| spelling | doaj.art-74e351b4f9e94c418ca61abc64b0ad2f2023-11-21T22:24:52ZengMDPI AGRisks2227-90912021-06-019610510.3390/risks9060105Insolvency Risk and Value Maximization: A Convergence between Financial Management and Risk ManagementAlessandro Gennaro0Department of Economics and Management, “Guglielmo Marconi” University, 00193 Rome, ItalyThis conceptual paper focuses on the relationship between insolvency, capital structure, and value creation. The aim is twofold: to define risk-based capital measures able to absorb the effects of financial distress and avoid corporate default; and to verify conditions and limits of use of these measures in corporate financial policies. The capital measures based on insolvency risk will be defined by recalling the concepts of Cash Flow-at-Risk and Capital-at-Risk. A first check on the usefulness of these risk-based measures and their consistency with the principle of value maximization is carried out through a simulation model. The scenario analysis allows us to examine how financial and risk policies oriented by insolvency avoidance affect the firm value. According to evidence from the simulation model, these measures appear to be useful in lowering the default risk, but they require a continuous assessment of their impact on the firm value.https://www.mdpi.com/2227-9091/9/6/105insolvency riskliquidity riskdefault riskrisk capitalCapital-at-RiskCash Flow-at-Risk |
| spellingShingle | Alessandro Gennaro Insolvency Risk and Value Maximization: A Convergence between Financial Management and Risk Management Risks insolvency risk liquidity risk default risk risk capital Capital-at-Risk Cash Flow-at-Risk |
| title | Insolvency Risk and Value Maximization: A Convergence between Financial Management and Risk Management |
| title_full | Insolvency Risk and Value Maximization: A Convergence between Financial Management and Risk Management |
| title_fullStr | Insolvency Risk and Value Maximization: A Convergence between Financial Management and Risk Management |
| title_full_unstemmed | Insolvency Risk and Value Maximization: A Convergence between Financial Management and Risk Management |
| title_short | Insolvency Risk and Value Maximization: A Convergence between Financial Management and Risk Management |
| title_sort | insolvency risk and value maximization a convergence between financial management and risk management |
| topic | insolvency risk liquidity risk default risk risk capital Capital-at-Risk Cash Flow-at-Risk |
| url | https://www.mdpi.com/2227-9091/9/6/105 |
| work_keys_str_mv | AT alessandrogennaro insolvencyriskandvaluemaximizationaconvergencebetweenfinancialmanagementandriskmanagement |