Applied Corporate Risk and Liquidity Management

Cash holdings play a critical role for all corporations. They serve as a source of funding for investment projects that create value for shareholders and as a cushion against costly financial distress. On the other hand, excess cash holdings can induce wasteful spending and attract unwanted attention from labor unions and activist investors.

In Applied Corporate Risk and Liquidity Management, Erik Lie brings risk management and liquidity management together to explore how corporations can ensure they have sufficient-but not excess-cash holdings, both now and in the future. He begins by covering the determinants of liquidity, the consequences of suboptimal liquidity, and how to manage liquidity. Lie then demonstrates two ways to control current and future cash holdings: the mitigation of risk factors on operating cash flow and cash holdings and the payouts made to investors. Through this integrated approach, he explores how risk management and payout policy can and should be used to maintain the proper cash level. Using cash simulations throughout, Lie shows how to determine whether firms should hedge, which hedging mechanism to use, and which payout mechanism or debt structure is suitable.

With practical tools rooted in liquidity management, this book presents a strong theoretical foundation for risk management and payout policy, discusses practical considerations, and demonstrates applied tools that help managers make good decisions.