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Article
Publication date: 11 December 2018

Alasdair Marshall, Udechukwu Ojiako and Maxwell Chipulu

Risk appetite is widely accepted as a guiding metaphor for strategic risk management, yet metaphors for complex practice are hard to critique. This paper aims to apply an…

Abstract

Purpose

Risk appetite is widely accepted as a guiding metaphor for strategic risk management, yet metaphors for complex practice are hard to critique. This paper aims to apply an analytical framework comprising three categories of flaw – futility, perversity and jeopardy – to critically explore the risk appetite metaphor. Taking stock of management literature emphasising the need for metaphor to give ideation to complex management challenges and activities and recognising the need for high-level metaphor within strategic risk management in particular, the authors propose a means to scrutinise the risk appetite metaphor and thereby illustrate its use for further management metaphors.

Design/methodology/approach

The authors apply a structured analytical perspective designed to scrutinise conceivably any purportedly progressive social measure. The three flaw categories are used to warn that organisational risk appetite specifications can be: futile vis-a-vis their goals, productive of perverse outcomes with respect to these goals and so misleading about the true potential for risk management as to jeopardise superior alternative use of risk management resource. These flaw categories are used to structure a critical review of the risk appetite metaphor, which moves towards identifying its most fundamental flaws.

Findings

Two closely interrelated antecedents to flaws discussed within the three flaw categories are proposed: first, false confidence in organisational risk assessment and, second, organisational blindness towards contributions of behavioural risk-taking to true organisational risk exposure. A theory of high (over-optimistic, excessive or inappropriate) risk-taking organisations explores flaws within the three flaw categories with reference to these antecedents under organisational-cultural circumstances where the risk appetite metaphor is most needed and yet most problematic.

Originality/value

The paper is highly original in its representation of risk management as an organisational practice reliant on metaphor and in proposing a structured means to challenge it as a dominant guiding metaphor where it has gained widespread uncritical acceptance. The discussion is also innovative in its representation of high risk-taking organisations as likely to harbour strong managerial motives, aptitudes and capacities for covert and illicit forms of risk-taking which, being subversive and sometimes reactionary towards risk appetite specifications, may cause particularly serious futility, perversity and jeopardy problems. To conclude, the theory and its implications are summarised for practitioner and educational use.

Details

International Journal of Organizational Analysis, vol. 27 no. 1
Type: Research Article
ISSN: 1934-8835

Keywords

Article
Publication date: 28 September 2010

Eddie Hui, Hui Wang and Xian Zheng

The purpose of this paper is to investigate the risk appetite in Hong Kong real estate and property security markets in the recent episode of global financial crisis.

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Abstract

Purpose

The purpose of this paper is to investigate the risk appetite in Hong Kong real estate and property security markets in the recent episode of global financial crisis.

Design/methodology/approach

An advanced methodology developed from the previous risk appetite measurement and Markov Chain Monte Carlo simulation is used. Traditional research on risk appetite had never been applied to the real estate market before because no options underlying properties exist. However, this paper makes a contribution that in the absence of options, risk appetite indicators are derived for the real estate and property security markets.

Findings

The empirical results show that the risk appetite for the real estate market started to fall markedly in the third quarter of 2008, matching the very period of the Sub‐prime Mortgage Crisis in the USA. By contrast, those for the property security index were stabilizing in that period. This implies that investors' risk attitude to the real estate market differs from that to the property security market. Furthermore, the correlations between the index prices and the corresponding risk appetite in each market suggest that investors are “risk neutral” in the real estate market, while they are “risk lovers” in the property security market.

Originality/value

This paper, to the authors' best knowledge, is the first study to explore the risk appetite indicator in the real estate market, which could enable us to shed new light on the market price movement from the perspective of investors' market sentiment.

Details

Journal of Property Investment & Finance, vol. 28 no. 6
Type: Research Article
ISSN: 1463-578X

Keywords

Book part
Publication date: 10 February 2020

Joseph John Woods, Sharon Seychell, Ercan Ozen, Jonathan Spiteri, Robert Suban and Simon Grima

Although most of the traditional economic theories used to explain investor behaviour assume full investor rationality, experience proves otherwise. In this study, we…

Abstract

Although most of the traditional economic theories used to explain investor behaviour assume full investor rationality, experience proves otherwise. In this study, we examine a number of important determinants of risk appetite and tolerance, including gender, education and knowledge of financial services and loss aversion. We do this by designing a questionnaire to measure the level of risk appetite and tolerance, together with various demographic characteristics and loss aversion. The survey is administered among a random sample of 1,648 respondents from Turkey. We find that on average men exhibit a higher level of risk appetite and tolerance than women, thus suggesting a clear gender divide in terms of investment behaviour. Furthermore, knowledge of financial services is associated with higher levels of both risk appetite and tolerance, with younger respondents also exhibiting similar patterns of behaviour. By contrast, loss-averse respondents are less open and tolerant of risk, which indicates that behavioural biases such as loss aversion can have a meaningful impact on investment decisions, at odds with traditional models based on rational choice theory. The findings have a number of important implications for investment behaviour and education, including the importance of gender balance within investment committees in order to ensure a more even distribution of risk behaviour, as well as the need to incorporate considerations related to loss aversion in all aspects of policymaking and regulation.

Details

Contemporary Issues in Audit Management and Forensic Accounting
Type: Book
ISBN: 978-1-83867-636-0

Keywords

Article
Publication date: 29 November 2018

Paschoal Federico Neto, Ricardo Fernandes Santos and Fábio Lotti Oliva

The purpose of this paper is to analyze the identification, evaluation and treatment of risks, as well as the appetite and corporate maturity in relation to enterprise risk

Abstract

Purpose

The purpose of this paper is to analyze the identification, evaluation and treatment of risks, as well as the appetite and corporate maturity in relation to enterprise risk management in the urban bus market of the city of São Paulo, Brazil.

Design/methodology/approach

A qualitative case study was formulated in two stages: the first one includes an interview with a bus market specialist and the second stage comprehends eight interviews with executives from bus chassis and coachwork manufacturers and bus fleet operators of this market.

Findings

The results show that larger companies tend to manage their risks in a more structured way when compared with smaller ones, although there are some exceptions. The most critical risks evaluated concerns to the political type followed by the economic/financial, strategic, environmental, social, operational, technological, image and ethical types; and the risk appetites are generally consistent with the risks criticality level.

Practical implications

This case study of an important sector in the economy can be emblematic for the adoption of good practices of risk management by managers.

Originality/value

Risk appetites are generally consistent with criticality and the main forms of treatment are to reduce, share and follow, linked to participation in representative associations.

Details

Benchmarking: An International Journal, vol. 25 no. 9
Type: Research Article
ISSN: 1463-5771

Keywords

Book part
Publication date: 28 November 2017

Francesco Bellandi

Part IV provides readers with the extant requirements for the application of materiality to recognition, measurement, presentation, and disclosure in the financial…

Abstract

Part IV provides readers with the extant requirements for the application of materiality to recognition, measurement, presentation, and disclosure in the financial statements. This part also includes a detailed critical review of the recent Practice Statement on materiality, the FASB’s proposed ASU on the notes and the amendments to the Conceptual Framework proposed by the IASB and the FASB.

The part expands to issues that are typical of Management Commentary, including the SEC guidance on materiality in Management Discussion and Analysis.

It informs about the complexities and subtle differences between financial statements and bookkeeping and the different standards of reasonableness versus materiality.

A section moves from materiality to material misstatements and covers the application of materiality in auditing.

Another section goes in depth on internal control over financial reporting, showing the linkages between materiality and risk appetite and risk tolerance and the related application guidance.

Details

Materiality in Financial Reporting
Type: Book
ISBN: 978-1-78743-736-4

Keywords

Article
Publication date: 6 February 2017

Francesco Tajani and Pierluigi Morano

The purpose of this paper is to propose a decision-support methodology for public and private subjects involved in the enhancement of public properties. In particular…

Abstract

Purpose

The purpose of this paper is to propose a decision-support methodology for public and private subjects involved in the enhancement of public properties. In particular, with reference to cases in which the disused public property can be sold and the range of functions that define the highest and best use of the conversion was identified, the developed model allows for the assessment of the financial feasibility of the initiatives, in relation to the corresponding investment risks.

Design/methodology/approach

The proposed model integrates the mathematical logic of goal programming for the evaluation of the financial conveniences of the parties (public and private) involved in the enhancement of a public property with statistical approaches (value at risk+exponentially weighted moving average) so as to determine the investment risk of the private investor. The application of the model to a real case study highlighted the potentialities of the proposed methodology.

Findings

The model allows to determine: the optimal mix of intended uses to be realized in the public property under analysis; the fair value of the public property for the parties involved in the transaction; and the Pareto-optimal frontier of the expected profits, as a function of the risk appetite of the private investor.

Practical implications

The defined model responds to the growing international interest in the enhancement of public buildings, satisfies the objectives of the substantial reduction of soil sealing and urban sustainability, stimulates the urban regeneration of deprived areas of the cities through the reactivation of large buildings that have been disused or underused for too long.

Originality/value

The present research allows to provide effective evaluation tools capable of outlining the opportunities of redevelopment initiatives and examines the risk factors that often invalidate the initial forecasts of the private entrepreneur and/or stop the activation of investments.

Details

Journal of Property Investment & Finance, vol. 35 no. 1
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 11 March 2021

Abroon Qazi and Mecit Can Emre Simsekler

The purpose of this paper is to develop and operationalize a process for prioritizing supply chain risks that is capable of capturing the value at risk (VaR), the maximum…

Abstract

Purpose

The purpose of this paper is to develop and operationalize a process for prioritizing supply chain risks that is capable of capturing the value at risk (VaR), the maximum loss expected at a given confidence level for a specified timeframe associated with risks within a network setting.

Design/methodology/approach

The proposed “Worst Expected Best” method is theoretically grounded in the framework of Bayesian Belief Networks (BBNs), which is considered an effective technique for modeling interdependency across uncertain variables. An algorithm is developed to operationalize the proposed method, which is demonstrated using a simulation model.

Findings

Point estimate-based methods used for aggregating the network expected loss for a given supply chain risk network are unable to project the realistic risk exposure associated with a supply chain. The proposed method helps in establishing the expected network-wide loss for a given confidence level. The vulnerability and resilience-based risk prioritization schemes for the model considered in this paper have a very weak correlation.

Originality/value

This paper introduces a new “Worst Expected Best” method to the literature on supply chain risk management that helps in assessing the probabilistic network expected VaR for a given supply chain risk network. Further, new risk metrics are proposed to prioritize risks relative to a specific VaR that reflects the decision-maker's risk appetite.

Details

International Journal of Quality & Reliability Management, vol. 39 no. 1
Type: Research Article
ISSN: 0265-671X

Keywords

Article
Publication date: 24 July 2021

Noémi També Bearpark and Dionysios Demetis

This paper aims to explain the de-risking phenomenon through Luhmann’s risk/danger model and demonstrate that de-risking should be facilitated and encouraged.

Abstract

Purpose

This paper aims to explain the de-risking phenomenon through Luhmann’s risk/danger model and demonstrate that de-risking should be facilitated and encouraged.

Design/methodology/approach

The paper applies Luhmann’s system theory and more specifically his risk/danger model to describe the de-risking phenomenon and identify recommendations to address its consequences.

Findings

The paper finds that re-defining risk and the anti-money laundering (AML)’s community’s understanding of it can support key stakeholders’ understanding of money laundering (ML) risk and the way to better address consequences of AML decisions.

Practical implications

The paper has implications for the banking and regulatory community in relation to the interpretation of de-risking. As systems aim to minimise their exposure to risk, they should not be prevented from de-risking.

Originality/value

This paper aims to move away from a narrative description of AML phenomena and presents a theoretical foundation for the analysis of ML risk. The current response to de-risking which demonises it and aims to prevent it is deconstructed through this theoretical lens.

Details

Journal of Money Laundering Control, vol. 25 no. 1
Type: Research Article
ISSN: 1368-5201

Keywords

Article
Publication date: 1 April 2014

Lukasz Prorokowski and Paulina Roszkowska

The purpose of this paper is to examine the extent to which Central European emerging stock markets (focusing on Poland) have been affected by the recent international…

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Abstract

Purpose

The purpose of this paper is to examine the extent to which Central European emerging stock markets (focusing on Poland) have been affected by the recent international financial crisis, and how the current investment climate (barriers, risks, challenges and opportunities) influences appetite for investments in Polish equities. In doing so, the study aims to report timely findings in relation to the determinants of the safety and profitability of international portfolio diversification to the Polish stock market.

Design/methodology/approach

Based on qualitative empirical research, the authors analyse the differences between the foreign (UK) and domestic (Poland) investors' views on equity investments in Poland. The study builds on questionnaires and interviews with practitioners associated with the Polish stock market.

Findings

The authors report that the global financial crisis influenced changes to domestic and international investors' appetite for risk related to equity investments in emerging stock markets: investors are more prudent about emerging markets but the Polish stock market has shown substantial growth potential and positively distinguished itself from other Central European stock exchanges; particular types of investment risks associated with equity investments in the Polish stock market have abated. Polish equities are an attractive component of the international portfolio diversification, provided that trading strategies are adjusted to the contemporary investment environment.

Originality/value

This paper addresses the absence of the academic literature devoted to the analysis of equity investments in the contemporary Central European emerging stock markets. The authors discuss the differences in appetite for risk between the UK and Polish investors and assumptions about investments in Poland. The authors also contribute to the international debate on investor protection and regulations that can improve investment processes.

Details

Baltic Journal of Management, vol. 9 no. 2
Type: Research Article
ISSN: 1746-5265

Keywords

Article
Publication date: 5 April 2013

Joseph Oscar Akotey and Joshua Abor

The purpose of this paper is to examine the risk management practices of life assurance firms and non‐life insurance firms.

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Abstract

Purpose

The purpose of this paper is to examine the risk management practices of life assurance firms and non‐life insurance firms.

Design/methodology/approach

Through a comparative case study methodology, the study assesses the state of risk management in both life assurance companies and non‐life insurance firms to determine whether they exhibit different or similar risk management practices. The results of the survey were also analyzed and compared to the principles of good practices in financial risk management.

Findings

The findings of the study revealed some differences and similarities in the risk management practices of life and non‐life insurance firms. Almost all the life companies have stated their risk appetite levels, which enable them to identify which risks to absorb and which ones to transfer. But non‐life insurance firms have not laid down their risk tolerance levels explicitly. The results further revealed that the industry lacks sufficient personnel with the requisite risk management skills and that the sector does not manage risks proactively, rather they do so in a reactive response to regulatory directives.

Practical implications

Effective management of risks by insurers will increase the penetration of insurance in Ghana.

Social implications

Risk management is a crucial issue, not only for the survival and profitability of the insurance industry, but also for the socio‐economic growth and development of the whole economy. As major risks underwriters, insurance companies need to adopt good practices or quality measures in the management of financial risk. This is important, more so, as the industry prepares to re‐position itself to underwrite the risks in the emerging oil and gas industry of Ghana.

Originality/value

Research into financial risk management in the insurance industry from the Ghanaian perspective is rare. This study is therefore timely and its findings are invaluable for the efficient management of financial risk in the insurance industry.

Details

Qualitative Research in Financial Markets, vol. 5 no. 1
Type: Research Article
ISSN: 1755-4179

Keywords

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