This course examines important issues in corporate risk management from the perspective of financial managers. The course takes a broad perspective, investigating not only financial risks, but also moral hazard and adverse selection risks (which you covered in Course III). Importantly, the focus of the course is not limited to firms’ use of hedging instruments (derivatives). Instead, we also focus on the important role of the choice and structure of financial instruments in addressing risks that firms face and that investors are concerned about.

I strongly recommend that you already completed Corse III before taking this elective to assure that you have a strong background in capital structure theory, including Modigliani-Miller, cost of financial distress, risk-shifting, adverse selection, etc. Without the background from Course III, mastering the course will be very challenging.

If you wander whether you will like the topics of the course, I suggest that you read the following two chapters in Grinblatt and Titman, Financial Markets and Corporate Strategy:

• Chapter 18: How Managerial Incentives Affect Financial Decisions
• Chapter 21: Risk Management and Corporate Strategy.

The course consists of a mix of lectures, presentations by practitioners, and presentations by students, who must cover and present specific topics as a group.

We cover the following topics:

• Financial instruments from the perspective of risk and risk sharing
• Heding financial risks: Instruments, objectives, and problems
• Risk management in the airline industry: A practitioner’s perspective, speaker: Dr. Wolfgang Henle (CEO, SAMCO Aircraft Maintenance, former VP Controlling, Austrian Airlines)
• Project financing: A case study in risk management, speaker: Bernhard Haider (Country Manager Austria, ContourGlobal)

Additional Topics (that we may cover, depending on students’ preferences)

• Securitization: risk transfer or source of risk?
• The challenges of insuring catastrophic risks
• Catastrophe (CAT) bonds
• The risks of financing startups and venture capital financing
• Liquidity risk management: The role of cash and credit lines

We will decide on the specific topics we cover at the beginning of the course. I am open for suggestion of topics coming from participants.

1. Learn to identify key sources of risk in corporations.
2. Understand how risk management motives affect the choice of derivatives.
3. Understand risks involved when using derivatives to manage risks.
4. Understand how risk considerations shape financing decisions and financial instruments.
5. Understand limits to risk transfer and risk sharing.

Attendence (at least 80%) is mandatory.

This is an applied course. Real word problems are complex and the “solution” in many cases not just right or wrong. Instead, the solution involves a comprehensive analysis and identification of key problems. After a careful analysis of the specific case and problems at hand, students must develop a coherent line of reasoning. Students must be willing to actively participate in their groups, be interested in tackling challenging questions, and be comfortable with a learning approach that does not involve “solving a set of exercises to prepare for the exam.”

The course takes an applied perspective, based on practitioners’ presentations and real cases. Students form groups in which they discuss the cases and exercise, but everyone must be prepared to present the insights of their group in class.

Active class participation is important and individual students might be asked to lead a discussion or otherwise participate in the discussion.

Throughout the course, students will receive exercises that they have to prepare, including case studies and specific corporate risk management topics. Exercises include both group exercises and individual exercises. 

Students with at least 60 points from the exercises and class participation can elect not to take the final and receive a grade of 1,0. For all other students, the grades are based on the following grading scheme:

86 points or more - 1,0

74 points or more - 2,0

62 points or more - 3,0

50 points or more - 4,0

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You must have mastered the content of Courses I and II.

E-mail: christian.laux@wu.ac.at