Chapter 7. Risk management

Informed risk management can reduce firm risk to tolerable levels, allowing companies to thrive. The consequences are new jobs, new products, and long-lasting benefits to society. However, the academic evidence on the importance of risk management is frequently described as ‘mixed’ (MacKay and Moeller, 2007; Bodnar et al., 2019). This article will explore both important successes in the literature and where disconnects remain between theory and empirical work. We begin by building a broad taxonomy for categorizing the key corporate risks before delving into the motivations to manage risk through the lens of various stakeholders. The chapter also surveys the many financial and operational hedging tools documented in the literature. We conclude with a discussion of possibilities for additional novel research.