Search results

In developing countries, how risk management technologies influence management accounting and control (MAC) practices is under-researched. By drawing on insights from institutional studies, this study aims to examine the multiple institutional pressures surrounding an entity and influencing its risk-based management control (RBC) system – that is, how RBC appears in an emerging market attributed to institutional multiplicity.

The authors used qualitative case study research methods to collect empirical evidence from a privately owned Egyptian insurance company.

The authors observed that in the transformation to risk-based controls, especially in socio-political settings such as Egypt, changes in MAC systems were consistent with the shifts in the institutional context. Along with changes in the institutional environment, the case company sought to configure its MAC system to be more risk-based to achieve its strategic goals effectively and maintain its sustainability.

This research provides a fuller view of risk-based management controls based on the social, professional and political perspectives central to the examined institutional environment. Moreover, unlike early studies that reported resistance to RBC, this case reveals the institutional dynamics contributing to the successful implementation of RBC in an emerging market.

Purpose – Since risk management is crucial for achieving strategic objectives in a complex and uncertain environment and its effectiveness relies deeply on efforts to create a risk-conscious culture, this study aims at understanding whether risk management can be promoted and reinforced by the use of performance-based monetary incentives given to Board members and top managers.

Methodology/approach – This study is explorative in nature and investigates four case studies based on document analysis and semi-structured interviews with risk managers.

Findings – Results show that some companies have already adopted risk measures in incentive schemes. At the same time all interviewees agree with the usefulness of linking traditional performance-based monetary incentives to risk management objectives in order to improve the effectiveness of the latter and to create a risk-aware culture. However, the difficulty in identifying proper measures has been underlined.

Practical implications – The study confirms the feasibility of linking risk dimensions to reward systems and suggests that firms should move in this direction. The study also outlines and proposes some possible measures to reward managers.

Limitations – This study views risk as measurable and managerially actionable and focuses only on incentives while acknowledging the use of other mechanisms that can contribute to the creation of an informed risk culture. Furthermore, the integration of risk management with other management control systems and accounting instruments has not been analyzed.

Value of the paper – This study addresses firms and their stakeholders’ need to make top managers more accountable for risk in their decision-making.

This chapter aims to advance the debate on enterprise risk management (ERM) frameworks within different contexts. We discuss the economic, business and regulatory environments that set the framework for company risk management practices in Lithuania while contrasting ERM features at the company level. ERM practices are examined using two company cases – a private business company and a state-owned enterprise (SOE), and evidence is based on interviews with their management, as well as their documentation. The findings indicate the co-existence of a functional vs systematic approach to risk management. Moreover, evidence supports the notion of the shifting of risk management from a functional risk management approach to a systematic approach within risk portfolio management. We assume that risk management is a conceptualized subject of management and research, with a rather weak connection with enterprise goals and operations.

Emphasising the significance of managing environmental and social issues for businesses, the chapter aims at highlighting the need of developing a non-financial risk management system for elevating corporate social responsibility (CSR) performance in China. Particularly, through discussing its importance, opportunities, and challenges.

Analysis and discussion of the chapter are based on multiple sources of information. Review of literature includes authoritative academic articles, reports from renowned global organisations, media coverage of corporations, and examples of business cases in China.

Several key findings are covered in the chapter. First of all, environmental and social concerns are usually being deemed as intangible issues that need to be properly articulated and managed by an effective non-financial risk management system for enhancing corporate sustainability in China. Secondly, through different interpretations of sustainability, links could be drawn for non-financial risk management and sustainability. Thirdly, by explaining the impacts from non-financial risk management to sustainable development and profits, the chapter has argued CSR as a clear business case for any company in China. Fourthly, challenges are also portrayed for the effective management of non-financial risk management by corporations. Finally, the need of a well-defined non-financial risk management system for helping businesses to be more competitive, thus, moving closer to sustainability in China and elsewhere is provided.

Integrating environmental and social risks is critical to the effective management of any corporation’s real risks and to improve resource allocation in a sustainable fashion. This demands a systematic and strategic identification of issues through non-financial risk management. Most significantly, this chapter has shown the way this can be achieved by any corporation in China, and the concepts can be applied into other societies.

The contribution of the chapter is thought to be significant. Although there exists a wide body of research on sustainable development, risk management and CSR in China, there is limited insight into how corporations can effectively conceptualise such intangible or non-financial risks in relation to sustainability.

Since the mid-1990s, enterprise risk management (ERM) has proliferated in both the private and public sector as a holistic, enterprise-wide approach to risk management. In this chapter, we begin by exploring the economic, regulatory and professional context of ERM practices in Norway. To gain an understanding of the current state of ERM practices among Norwegian entities, we have conducted a survey among members of the Institute of Internal Auditors (IIA) Norway. Based on the survey data, we go on to analyse the perceived maturity of risk management practices of the surveyed organizations, as well as their integration of risk management with governance mechanisms and accounting practices. Four main findings emerged from the survey. We firstly observed that a majority of the respondents perceived that they had implemented ERM. Secondly, the average maturity of risk management practice is at a medium level, with ambitions to improve it further in the future. We further observed that a majority of the organizations have established risk management governance structures regarding the roles of risk management. However, there is still work to be done in relation to risk management functions in order for them to gain more attention and influence in the organizations. Finally, we find that risk management is more integrated with reporting processes than with strategic and performance planning processes, suggesting a more reactive than proactive approach to managing risks.

The aim of this research is to examine the evolvement of enterprise risk management (ERM) in Sweden. We examine how the Swedish legal and self-regulatory framework influences ERM development. We examine the impact of ERM research on practice, the professionalization of ERM facilitated by professional bodies and associations, and its promotion by the evolvement of principles and practices. This research is based on interviews with national experts ¹ at the policy level as well as four field visits to large Swedish organizations in order to deepen our understanding of ERM integration with corporate governance, accounting, and disclosures. We find that: There is no obvious misalignment between the legal and self-regulatory framework and ERM practices in organizations; ERM is more integrated with disclosures than with governance and accounting practices; decentralized organizations experience more difficulty in integrating ERM compared to centralized organizations; no tensions were evident between compliance and business partnering in the four field visits, enabling ERM integration; regulation can be useful in promoting minimum standards for ERM integration. This study adds to our understanding of ERM integration and the role of unique governing contracts in linking profitability, growth and risk from an ERM perspective. It also deepens our understanding of ERM integration as a multidimensional construct.

Large-scale farm management in China has developed rapidly in recent years. Large-scale farmers face substantial operating risks, requiring extensive price risk management. However, the agricultural insurance and futures markets in China are incomplete. This study aims to analyze the price-risk-management behaviors of large-scale farmers under incomplete market conditions, with a focus on the interconnections between large scale farmers' subjective preferences (risk preferences, time preferences), liquidity constraints and their price risk management.

The authors construct an analysis framework to reveal the impact of large-scale farmers' risk preferences, time preferences and liquidity conditions on their price-risk-management behaviors under incomplete market conditions. Using data from field surveys and subjective preference experiments involving 409 large-scale grain farmers in China, an empirical analysis was conducted using the bivariate probit model.

The results show that risk-averse farmers will use risk transfer (such as contract farming) and risk diversification (such as multi-period sales) to avoid price risk. However, farmers subject to liquidity constraints and strong time preferences will not choose risk diversification, and the interaction between time preferences and liquidity constraints will strengthen this decision. The larger the farm-management scale, the greater the impact.

The authors focus on rapidly developed large-scale farm management in China. Appropriate price risk management is required by large-scale farmers due to their substantial operating risks. Considering the incomplete conditions of agricultural insurance and futures markets, the results of this study will help identify behavioral characteristics of large-scale farmers and optimize their price-risk-management strategies, further stabilizing large-scale farm management.

The goal of this paper is to develop a model which may be used to demonstrate costs and benefits of risk management investments in the context of value-based management.

This paper answers the question of how to quantify changes in company value caused by risk management measures on a theoretical basis. First, a review of empirical studies allowing assertions about the cost and utility of risk management investments is presented. The results of these studies point to a nonlinear shape of the curve and form a basis for the development of a seemingly plausible cost/utility correlation.

In this paper, a model will be developed which can be used to demonstrate costs and benefits of risk management investments in the context of value-based management. It is assumed that at first, risk management expenditures without measurable monetary utility will have to be made. Furthermore, it is assumed to increase more than proportionally, then less than proportionally, until further investments in risk management activities yield only minimal increases in utility and cannot improve company value any further.

By inserting the yet-to-be-determined actual cost/benefit relationship for a company or industry sector into the EVA equation, it is possible to display the effects of risk management measures on the company value. This procedure is principally combinable with the analysis of other value-based control parameters, that is, the Discounted Cash Flow concept or the Cash Value Added methodology.

Risk management is increasingly gaining scientific and public interest, especially since the global financial crisis. Scientists and practical users espouse the benefits of risk management systems in this context. However, the extent to which investments in risk management systems can improve the value of a company remains still unclear.

We could determine that at first risk management expenditures will not result in a monetarily measurable benefit. The remaining slope of the curve is derived as increasing more than proportionally at first, then less than proportionally, until further investments into risk management activities yield almost no additional increase in benefits. In this paper, three different functions are offered to describe the shape of the curve identified. They differ in regard to their free parameters and hence in their flexibility of application. The higher flexibility of functions #2 and #3 is balanced by the disadvantage of increasing formal complexity, possibly leading to an increased effort for implementation and application.

To harness the relationships developed in this paper for practical use, further research should target the identification and empirical verification of dependencies between the parameters and principal company index values.

Introduction: Looking at the risks faced by enterprises in recent years, we see that the risks have shifted radically from traditional economic and financial risks to those posed by environmental and social factors. Developments in the field of activity of enterprises (climate change, the increasing relationship between the society and enterprises through shareholders and partners) have led to an increase in the number and diversity of risks faced by enterprises. It is only possible for enterprises to cope with these increasing risks by adopting a proactive and contemporary management approach. One of these contemporary management approaches that businesses should adopt is sustainability. Many researches have shown that the integration of sustainability into risk management has proved successful in risk management.

Purpose: Looking at previous literature, this study sets forth what financial (economic), environmental and social risks businesses may face today, explains with a few examples what measures companies can implement to eliminate these risks, and a future perspective is presented to companies. In addition, this study makes recommendations on how to successfully manage the risks that companies may face and emphasizes what the positive results of sustainable risk management can be (increasing the business value, ensuring sustainability and increasing the shareholder value). Mention was made about the fact that the ability of enterprises to successfully manage sustainability risks depends on their ability to prevent, identify, mitigate and manage risks, and it was emphasized that the environmental, social and governance risks must, to a large extent, be taken into account by many circles (regulators and customers), mainly investors. In addition, this study aims to identify and evaluate the current and possible future risks and to serve as a guide for actions to be taken to minimize risks or keep them at an optimum level.

Methodology: In this section, a compilation study on sustainability risk management (SRM) was done in the light of information obtained from various reports, scientific articles and books. In other words, in this section, information from various scientific sources on SRM was systematically collected, analyzed, interpreted and evaluated, and effort was made to present an up-to-date, extensive conceptual framework related to SRM. In addition, the scientific literature – especially in the historical development process of the last decade – on the debate of SRM was examined in this study, and the highest point reached in this debate today is revealed. Thus, the positioning of different views on the sustainability issue and the latest developments in the literature were also evaluated properly.

Findings: As a result of the examination of the scientific literature on SRM in the last decade, it has been determined that SRM has led to many other favorable outcomes, from the sustainability of the enterprise to gaining competitive advantage, increasing its goodwill, reputation and efficiency.

Understanding the context of any subject is crucial and this is certainly true of risk management in the public sector. Undoubtedly, what we face today is the highly path-dependent result of what has happened in the past. And, what happens today in a local government, for example, is very much influenced by the wider current situation that surrounds it. Further, it must be said that even the future can be part of the present context (climate change would be a stark example of this).

Described in this way, it seems a daunting challenge to understand past, present, and future – and, indeed, it verges on the impossible. The remaining chapters of this book revisit the context through the lens of the various components of risk management (assessment, analysis, forecasting, and more) and by looking at the present and future through the concepts and principles used by risk managers. Here, in Chapter Three, the issue of context is first considered by examining the relationship between past and present with specific reference to risk management as a management practice. Thus, the chapter does not specifically address how uncertainty is assessed, or how insurance is used, or even how a risk management programme operates – these are topics for later chapters. Rather, the history of risk management is presented as a narrative that seeks to explain how risk management has evolved into what it is today.

Finally, the chapter leads into the present by providing an overview of the current public environment in Europe. This allows the book to develop both a history of how risk management became what it is today, and to understand the key risks and uncertainties that define the current context. Chapter Four presents the administrative nature of today’s practices and offers some speculation about alternative ways of thinking about risk management practices now and in the future.