How risk affect corporate financial strategy Research Paper

How risk affect corporate financial strategy - Research Paper Example Risk is the probability of loss to occur. Corporate financial strategy is affected by various types of risks. This includes political risk. Conflicts and civil wars leads to massive loss of assets by companies. When there is conflict in a country, companies’ property are looted and others destroyed.   Companies located in these countries suffer huge losses since it become hard to protect their investments. Nationalization of industries also poses political risk since companies’ lose their licenses; hence, they cannot continue to operate in these countries. Governments may also increases taxes on companies, making it difficult for any company to continue operating. The second type of risk is interest rate. When higher interest rate is charged on loans, it makes it impossible for companies to fund their operations using loans. Due to high interest rate charged on loans, corporate may fix higher prices on good and services hence reducing the market share as consumer will shift to cheaper goods (Ehrhardt and Eugene 7).The author states that one of the risks is credit risk. This type of risk is most common in banking industry where borrower will fail to meet the obligation to repay the loan in the agreed terms. Other risks occur in book keeping where incorrect figures are entered. Failure of borrowers to repay their loans and errors in book keeping causes huge loses to banking industries. The fourth type of risk is business risk. This is the probability that an auditor will suffer loss to his professional practice.