Risk Management in the Shadow Economy: Evidence from the Sport Betting Market

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Risk Management in the Shadow Economy: Evidence from the Sport Betting Market

Academic Journal

Arscott, Robert

Langue: English

Publication year: 01/12/2022

ISSN: 09291199
EAN Papier: 10.1016/j.jcorpfin.2022.102307

Sujets

Asymmetric and Private Information; Mechanism Design, Informal Economy; Underground Economy, Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill, Illegal Behavior and the Enforcement of Law, Sports; Gambling; Restaurants; Recreation; Tourism, Sports Economics: Industry Studies

I use the market for college football point spread gambling as a laboratory for assessing risk management activity among illegal firms. Offshore bookmakers employ pricing policies that reflect a book balancing objective whereas legal bookmakers seldom do so. Pricing policies that prioritize book balance lower the variance of bookmakers' expected cash flow, but at the cost of lower profit. Due to the legal and moral hazards involved in operating an illegal enterprise, these firms rely on internal financing. Consequently, illegal bookmakers behave as mean-variance optimizers as opposed to legal bookmakers who appear to behave as profit maximizers.

Risk Management in the Shadow Economy: Evidence from the Sport Betting Market

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