The objective, function and value of financial risk management remain debated issues. In 1993, the Group of 30 recommended that market and credit risk management should be functions independent of the day-to-day operations of the firm. Twenty years earlier, however, Mehr and Forbes (1973) argued the exact opposite. Today Holton (2004) argues that the risk management function within the firm is too close to operations, thus failing miserably the Group of 30’s recommendations.
The modern view of risk management or hedging activities, and the standard representation of risk management as a value-adding activity, is mainly financial in nature. Under the general supervision and responsibility of chief executive officers (CEO), chief risk officers (CRO) are now working alongside chief operating officers (COO) to maximize firm value, thus making risk management a central function of firms. Yet, in perfect financial markets, hedging risk cannot increase firm value by an irrelevance proposition discussed in Smith and Stulz (1985), which is a natural extension of the leverage irrelevance theorem of Modigliani and Miller (1958).
Those with an interest in the credit card industry, including regulators, equity analysts, and investors, would likely agree that one of the most important publicly available measures of industry health is the percentage of receivables that card issuers "charge off." Charged-offs loans are considered uncollectible and removed from issuers portfolios usually because of cardholder bankruptcy, death, or prolonged delinquency.
Charge offs are a significant drain on industry profitability and are closely watched by investors and regulators. Last year, bankcard issuers charged off $35B, or approximately 6.5 percent of their average out standings. The number of different entities that regularly produce a credit card industry charge off statistic ¾ at least eight ¾ reflects the importance of this metric to those who study this sector. Debt rating agencies, government regulators, brokerage firms, websites, and trade publications have all come up with their own ways of measuring credit card charge offs at the industry and individual issuer level.
A large part of the literature about Foreign Direct Investment (FDI) analyzes the associations between FDI and the factors that affect its location. Some of the motivations to explain these relationships are because FDI flows have dramatically increased, and in developing countries, are the most important source of external financing and a channel to transfer technology that contribute to economic growth. Some of the studied relationships include the effects of exchange rate on FDI (e.g., Barrel & Pain, 1996; Cushman, 1985, 1988; and Pain, 2003); the relationship between labor costs and FDI (e.g., Culem, 1988; Cushman, 1987; and Love & Lage-hidalgo, 2000); the association between political aspects and FDI (e.g., Haggard, 1989; Nigh,1985; and Tuman & Emmert, 2004); the effect of trade issues such as openness, trade protection and trade agreements on FDI (e.g., Agosin & Machado, 2006; Barrel & Pain, 1999; and Waldkirch, 2003); and the relationship between host country market size and FDI (e.g., Barrel &Pain, 1996; and Love & Lage-hidalgo, 2000).
In addition, positive associations between FDI and growth include Bengoa and Sanchez-Robles (2003), Campos and Kinoshita (2002), Hansen and Rand (2006), Li and Liu (2005), and Oliva and Rivera-Batiz (2002). The literature on the determinants of FDI reports market size as the most influential determinant of FDI. In this literature, one of the proxies used for market size is per capita GDP and represents the income level of the host country, so that it is likely that an increase in per capita GDP will increase the market size for the goods and services produced by the multinational firms? (MNF) affiliates.
