The effect of market risk management on company value among the firms listed at the Nairobi Securities Exchange
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This paper investigates the effect of market risk management on firm value with specific reference to those listed at the NSE. Management of market risk is of essence at the NSE as investors have put huge sums of their capital to get value in return. Some of the components of market risk are foreign exchange risk, commodity risk and exchange rate risk. Theories based on market imperfection imply that hedging should increase the firm's market value. To test this, views have been sought from CEOS who are charged with the responsibility of initiating risk management in their respective companies. The study sought to know from the CEOs of the listed companies their view of the effect of market risk management on firm value with use of questionnaires as a research instrument. Questionnaires were designed to test on usage and effectiveness ofthe various market risk instruments used to hedge . The objective of the study was to determine the effect of market risk management on the value of the firm among companies listed at the NSE. The findings revealed the CEOs used commodity risk, foreign exchange and interest rate instruments to hedge risk and reported their effectiveness to an extent but the value added to firms on their usage could not be determined except for foreign exchange instruments usage. The researcher recommends that CEOs and the board should infuse a risk culture in the organization and this integrated in performance goals and compensation decisions to achieve value from risk management activities.
University of Nairobi, Kenya