Economic exposure and integrated risk management

Most corporate risk management research focuses on particular risk exposures to the exclusion of other interrelated exposures. By contrast, this study models corporate risk exposures using a multivariate approach integrating the distinct exposures of interest to finance and strategy researchers. The paper addresses the implications of multivariate modeling for corporate risk management, some key methodological issues arising in empirical estimation of corporate economic exposures, and directions for research on integrated risk management. Funding from Krannert's Center for International Business Education and Research is gratefully acknowledged. 2 Exposure refers to the extent to which external environmental contingencies have an impact on a company's perfonnance. In the past, scholarly interest in corporate risk exposure has come almost exclusively from the accounting and finance fields. Interest in corporate foreign exchange exposure arose from the practical need to consolidate the financial statements of foreign operations to local currencies (translation exposure) and the possibility of incurring accounting gains or losses on receivables and payables denominated in foreign currencies (transaction exposure). While much attention has been give