FINANCIAL RISK MEASUREMENT AND MANAGEMENT IN DUTCH FIRMS
This Ph.D. thesis examines how Dutch non-financial firms deal with financial risk, i.e. the impact on firm value of unexpected changes in exchange rates, interest rates and commodity prices. Specifically two important empirical issues in the financial risk management process are studied: the measurement of exchange-rate exposure and the management of financial risk.
Regarding exchange-rate exposure measurement, previous studies have found little empirical evidence of the relationship between exchange rate changes and firm value. This thesis tests for empirical evidence of exchange-rate exposure in the Netherlands because it has a very open economy. The study finds empirical proof of exchange-rate exposure as more than half of the firms in the Dutch sample is significantly exposed to exchange-rate risk. These results warrant an examination of the financial risk management practices of Dutch firms.
This thesis for the first time tests whether financial risk management practices are driven by the institutional differences between countries. In order to examine the effect of institutional differences, a matching and weighting methodology is developed that enables a direct comparison of financial risk management practices across countries. The study indicates that the following institutional differences between the Netherlands and the US influence firms’ financial risk management practices: the level of openness of the economy, the level of focus on shareholder value creation, the strictness of external disclosure requirements with respect to derivatives and the structure of financial markets.