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Risk Management in the Gold Mining Industry

Risk Management in the Gold Mining Industry

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Published by: api-19760325 on Nov 28, 2009
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03/18/2014

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Created by Mbaakoh Longinu, Coventry University
1
Dedication
To my dear father and mother Mr & Mrs Longinu Fombi
Created by Mbaakoh Longinu, Coventry University
2
Acknowledgement

I am extremely grateful to Mr Robert Evans of the Coventry Business School for inspiring and guiding me through this dissertation. His perspective and guidance have been invaluable. Thank you to Mr Azoh-mbi Solomon and Mr Akonde John Best for their words of encouragement and support. This study has also benefited immeasurably from the comments and suggestions of Ijeoma, Karen and Agnese. Finally special thanks to Amanpreet for reading through the first draft. Her suggestions were extremely helpful and insightful.

Created by Mbaakoh Longinu, Coventry University
3
Table of Contents

Dedication.............................................................................................................1 Acknowledgement.................................................................................................1 Table of Contents..................................................................................................3 Abstract.................................................................................................................5 List of Tables........................................................................................................7 List of Figures.......................................................................................................8 1.0 Introduction.....................................................................................................9

1.1 Research Question.................................................................................................. 12
1.2 Research Objectives................................................................................................ 14
2.0 Literature Review..........................................................................................15

2.1 Risk Management Theories.................................................................................... 16
2.11 Financial Distress Model.................................................................................. 16
2.12 Tax Incentives and Hedging............................................................................. 17
2.13 Management Incentives and Risk Aversion..................................................... 19
2.14 The Underinvestment Problem......................................................................... 20
2.15 Financial Sophistication Hypothesis................................................................. 21
2.2 Empirical Evidence on the Determinants of Corporate Risk Management............ 21
2.21 Empirical Evidence from Surveys........................................................................ 22
2.22 Empirical Evidence from Cross Sectional Studies........................................... 22
2.3 Empirical Evidence in the Gold Mining Industry................................................... 25

3.0 Research Methodology.................................................................................26

3.1 Research Perspective.............................................................................................. 27
3.2 Research Approach................................................................................................. 28
3.3 Research Design...................................................................................................... 29
3.4 Data Collection Methods........................................................................................ 31
3.5 Sample Description................................................................................................. 32
3.61 Measuring Financial distress............................................................................. 34
3.62 Measuring Investment Opportunity.................................................................. 34
3.63 Measuring Tax Convexity................................................................................. 35
3.64 Alternatives to Risk Management..................................................................... 35
3.7 Construction of the dependent variable.................................................................. 37

4.0 Data Analysis................................................................................................41

4.1 Univariate Analysis................................................................................................. 42
4.2 Regression Analysis................................................................................................ 44
4.3 Presenting Regression Results................................................................................ 46
4.31 Results of Financial Distress Variables............................................................ 47
4.32 Results of Investment Opportunity Variables................................................... 49
4.33 Results of Firm Size.......................................................................................... 49
4.34 Results of Taxation........................................................................................... 50

5.0 Conclusions..................................................................................................51 Appendixes 1 Global Positions in OTC derivative market...................................55 Appendix 2 Calculations of Independent Variables.............................................55 Appendix 3 Company year end derivative positions...........................................57 Appendix 4 Determination of Portfolio delta........................................................58

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