CORPORATE RISK MANAGEMENT RATIONALES: EVIDENCE FROM CROATIAN COMPANIES

According to the Capital Asset Pricing Model and the Modigliani-Miller
theorem, corporate risk management is irrelevant to the value of the firm. However, it is apparent that managers are constantly engaged in hedging activities that are directed at the reduction of corporate risks. As an explanation for this clash between theory and practice, imperfections in the capital market are used to argue for the relevance of corporate risk managementfunction. This paper analyses corporate risk management practices and decision
to hedge in large Croatian non-financial companies. By using univariate and multivariate analysis, it explores if decision to hedge corporate risks in the analysed companies is a function of several firm’s characteristics that have been proven as relevant in making risk management decisions.