Firms deal with different types of risk in their day-to-day operations and adopt risk management strategles. it is important to understand why firm: manage risk. The management of Chicago Pork. Producers Company told the company's board of directors that they have better insight into the firm's risk expost than outside investors. The firm's management used this as an argument for why it makes the most sense for management to use derivatives to manage the company's risk. They argued that this was more favorable than outside investors purchasing derivatives on their own to manage the rish associated with their investment in the company. Of the following reasons to manage risk, which is management most likely concerned with? Comparative advantage in hedging Tax effects Compensation systems Suppose you are comparing two very similar firms. Their operations are the same, and they differ only with respect to the volatility of their eamings. One firm has a risk management program that effectively stabilizes its earnings, and the second firm has more volatile earnings. Which firm is likely to pay more in taxes over the long run? The firm with volatile earnings The frrm with stable earnings