Using an Alternative Estimation Method to Perform Comprehensive Empirical Tests: An Application to Interest Rate Risk-Management
Using a sample of 241 U.S. bank holding companies, we test all relevant rationales for corporate risk-management activities related to interest rate risk. Three main results emerge: (1) measurement error and the possibility of multiple influences on the model's proxy variables indicate that the confirmatory factor analysis method can provide a more accurate and comprehensive test of interest rate risk-management rationales than conventional estimation techniques, (2) the corporate risk-management theories most consistently supported are those related to financial distress costs and firm size, and (3) an exogenous factor related to interest rate volatility negatively influences a firm's interest rate risk exposure.
Year of publication: |
2004
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Authors: | Pagano, Michael S. |
Published in: |
Review of Quantitative Finance and Accounting. - Springer. - Vol. 23.2004, 4, p. 377-406
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Publisher: |
Springer |
Saved in:
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