The collapse of Pasminco: misjudgment, misfortune and miscalculation/

By:

Brown, Christine [author]

Contributor(s):

Ma, James [co author]

Material type: Text

TextSeries: Australian journal of management ; Volume 36, number 2Los Angeles : Sage, 2011Content type:

text

Media type:

unmediated

Carrier type:

volume

ISSN:

03128962

Subject(s):

Exposure -- Hedging -- Market risk

LOC classification:

HD31 AUS

Online resources:

Click here to access online

Abstract: In September 2001 when Pasminco Ltd was placed in voluntary administration, it was the world’s biggest zinc producer with over 10% of global output. This paper examines the hedging strategies that Pasminco had in place in the years leading up to the firm being declared insolvent and documents the financial factors that contributed to the corporate collapse. We build a valuation model that illustrates in stark terms that the company’s hedging strategies materially reduced neither the exposure to market risk nor the probability of financial distress, and were a major contributing factor to the company’s downfall. The analysis in this case study contains valuable lessons for companies facing quantity and exchange rate risk.

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Holdings
Item type	Current library	Call number	Vol info	Status	Notes	Date due	Barcode
Journal Article	Main Library - Special Collections	HD31 AUS (Browse shelf(Opens below))	Vol. 36, no.2 (page 287-312)	Not for loan	For in house use only

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Previous	HD31 AUS Exploring the asset growth effect in the Australian equity market/	HD31 AUS Is default risk priced in Australian equity? : exploring the role of the business cycle/	HD31 AUS Dividend initiations and long-run IPO performance/	HD31 AUS The collapse of Pasminco: misjudgment, misfortune and miscalculation/	HD31 AUS The investment project pipeline : cost escalation, lead time, success, failure and speed/	HD31 AUS The impact of capital proposal guidelines and perceived preparer biases on reviewers’ investment evaluation decisions/	HD31 AUS Corporate governance and alternative performance measures : evidence from Australian firms/	Next

In September 2001 when Pasminco Ltd was placed in voluntary administration, it was the world’s biggest zinc producer with over 10% of global output. This paper examines the hedging strategies that Pasminco had in place in the years leading up to the firm being declared insolvent and documents the financial factors that contributed to the corporate collapse. We build a valuation model that illustrates in stark terms that the company’s hedging strategies materially reduced neither the exposure to market risk nor the probability of financial distress, and were a major contributing factor to the company’s downfall. The analysis in this case study contains valuable lessons for companies facing quantity and exchange rate risk.

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