Abstract: | This paper examines how recent theories on risk management apply to government owned organizations. We argue that, compared to publicly listed firms, government owned organizations have a lower need for risk management since stakeholders are likely to rely on implicit guarantees arising from government ownership. We test this proposition empirically and find that government owned organizations make less use of financial derivatives to reduce the costs of financial distress and agency conflicts. In general our findings provide strong support for the modern theories of risk management. |