Is enterprise risk management real?

Moving from the growing relevance of the enterprise risk management (ERM) concept, this paper provides empirical evidence of ERM in practice. The paper presents ERM actual uses in a panel of nine Italian companies from different industrial fields and legislative settings and analyses the relationship between the uses and the characteristics of the ERM tool implemented in each case. The data analysis highlights the existence of different activities that are supported by the ERM tool and also different types of use (i.e. responsive, discoursive and prospective) corresponding to a different contribution of ERM to managerial action. These uses related to the specific characteristics of the tools generally indicated with the label ‘ERM’.     

Back to the future: New potential for structuration theory in management accounting research?

For three decades, the use of structuration theory has made a distinctive contribution to management accounting research. A recent development of the theory by Stones [Stones, 2005. Structuration Theory. Palgrave Macmillan, Basingstoke] advocates a move away from the relatively abstract concepts evident in the work of Giddens, towards providing more concrete constructs that give epistemological and methodological guidance to researchers in the field. In order to achieve this, he recommends deployment of the concept of position–practices, combined with use of a quadripartite model of structuration. The main purpose of this paper is to examine the potential of this development for management accounting research. We do so by setting it within our own skeletal model of the structuration process, and then using it to analyse a case study of management accounting practices in a privatised utility company. We conclude that investigation of position–practices focuses attention on the strategic conduct of agents, the importance of power in social interaction, and a plurality of structures and theories of action. But, whilst the quadripartite model highlights the phenomenology, hermeneutics and practices of agents, we note that it provides few direct insights into the processes of reproduction, learning and change in management accounting. We suggest this limitation can be overcome by using structuration theory in a flexible manner, drawing inspiration from other theoretical perspectives which ascribe central roles to path dependency, contradiction and praxis.     

How did enterprise risk management first appear in the Korean public sector?

This research addresses the rise and fall of the Crisis Management Guideline of Public Organizations (CMGPO) from a historical perspective. In the Korean public sector, as a form of enterprise risk management (ERM), CMGPO is not designed to be merely a tool of financial risk management but also to be a policy tool for crisis management. CMGPO emerged within the conflict between integrated crisis management and dispersed crisis management. The purpose of CMGPO is to bureaucratically integrate the crisis management of public organizations with the governmental crisis management system. ERM as a form of self-regulation is entangled with the pre-existing command and control of the Korean government over integrated crisis management. As a result, CMGPO is characterized as ‘enforced self-regulation’ rather than self-regulation; this is a fundamental idea in ERM.     

New development: Integrating risk management in management control systems—lessons for public sector managers

Exploring multiple dimensions of management control systems (MCS), this article proposes a new framework to integrate risk management with strategy, MCS and performance measurement systems (PMS). Considering the public sector as a focal point, the article points to some enterprise risk management (ERM) issues and argues that ERM-enabled MCS has potential to improve PMS and strategic decision-making, leading to a more proactive risk management framework and a culture that promotes performance driven accountability. Consequently, the article calls for further research towards solving the public sector’s risk management problems, motivating its managers to adopt best practices, and stimulating suitable policy developments.     

Is performance measurement and management fit for the future?

Performance measurement and management (PMM) is a management and research paradox. On one hand, it provides management with many critical, useful, and needed functions. Yet, there is evidence that it can adversely affect performance. This paper attempts to resolve this paradox by focusing on the issue of “fit”. That is, in today's dynamic and turbulent environment, changes in either the business environment or the business strategy can lead to the need for new or revised measures and metrics. Yet, if these measures and metrics are either not revised or incorrectly revised, then we can encounter situations where what the firm wants to achieve (as communicated by its strategy) and what the firm measures and rewards are not synchronised with each other (i.e., there is a lack of “fit”). This situation can adversely affect the ability of the firm to compete. The issue of fit is explored using a three phase Delphi approach. Initially intended to resolve this first paradox, the Delphi study identified another paradox – one in which the researchers found that in a dynamic environment, firms do revise their strategies, yet, often the PMM system is not changed. To resolve this second paradox, the paper proposes a new framework – one that shows that under certain conditions, the observed metrics “lag” is not only explainable but also desirable. The findings suggest a need to recast the accepted relationship between strategy and PMM system and the output included the Performance Alignment Matrix that had utility for managers.     

Liver function tests: what is the risk?

Five laboratory assays are commonly called liver function tests (LFTs), although these tests are neither specific to the liver nor true measures of liver function. As a result, alanine aminotransferase (ALT or SGPT), aspartate aminotransferase (AST or SGOT), gamma-glutamyltransferase (GGT), alkaline phosphatase (ALP) and bilirubin have proven problematic for clinicians and risk selection professionals alike. Further, underwriters and insurance medical directors find these tests difficult to assess because of the lack of data directly relating LFT elevations to mortality outcome. Nonetheless, the tests are frequently encountered, so a strategy for evaluating abnormal results is critical to ensure accurate and fair pricing. This paper reviews basic information on LFTs, available mortality data and the application of this knowledge to the underwriting process.     

Do hedge funds' exposures to risk factors predict their future returns?

This paper investigates hedge funds' exposures to various financial and macroeconomic risk factors through alternative measures of factor betas and examines their performance in predicting the cross-sectional variation in hedge fund returns. Both parametric and non-parametric tests indicate a significantly positive (negative) link between default premium beta (inflation beta) and future hedge fund returns. The results are robust across different subsample periods and states of the economy, and after controlling for market, size, book-to-market, and momentum factors as well as the trend-following factors in stocks, short-term interest rates, currencies, bonds, and commodities. The paper also provides macro-level and micro-level explanations of our findings.     

Do management EPS forecasts allow returns to reflect future earnings? Implications for the continuation of management’s quarterly earnings guidance

Using 18,253 firm-year observations from 1998 through 2003, we build on literature suggesting that more informative disclosures allow returns to better reflect future earnings and test whether management earnings per share forecasts and their characteristics influence the future earnings response coefficient (FERC). We find that FERCs are greater for forecasting firms and when forecasts are more frequent or precise. We suggest that more frequent and more precise forecasts assist investors in better predicting future earnings. Importantly, we find that quarterly and short-term forecasts incrementally increase the association between returns and future earnings beyond annual and long-term forecasts; thus, even short-term, quarterly forecasts allow investors to form better expectations about future earnings. This suggests a benefit of quarterly earnings forecasts possibly overlooked in recommendations from the United States Chamber of Commerce, CFA Institute, Business Roundtable Institute for Corporate Ethics, and The Conference Board to eliminate quarterly earnings guidance.     

Breast cancer risk perceptions and breast cancer worry: what predicts what?

This longitudinal study explored the relationship between perceived breast cancer risk and worry. We measured both absolute and comparative risk perceptions, and also used the Gail algorithm to assess the accuracy of participants' risk perceptions. Three hundred and one women ages 40–75 participated in a two‐part study assessing how format of breast cancer risk presentation affected perceptions of risk. Relative to their Gail scores, women were biased pessimistically about their own absolute breast cancer risk and yet largely accurate about their comparative breast cancer risk. Perceived comparative risk, but not perceived absolute risk or biases in absolute or comparative risk, predicted subsequent worry. Worry predicted subsequent perceived absolute risk and biases in absolute and comparative risk. These results suggest that women's emotional reactions to breast cancer risk are based on accurate (unbiased) perceptions of their comparative risks. In turn, greater worry prompts a re‐evaluation of absolute risk as well as changes in risk biases. Implications for screening are discussed.     

Risk aversion vs. individualism: what drives risk taking in household finance?

Despite a considerable premium on equity with respect to risk-free assets, many households do not own stocks. We ask why the prevalence of stockholding is so limited. We focus on individuals’ attitudes toward risk and identify relevant factors that affect the willingness to take financial risks. Our empirical evidence contradicts standard portfolio theory, as it does not indicate a significant relationship between risk aversion and financial risk taking. However, our analysis supports the behavioral view that psychological factors rooted in national culture affect portfolio choice. Individualism, which is linked to overconfidence and overoptimism, has a significantly positive effect on financial risk taking. In microdata from Germany and Singapore, as well as in cross-country data, we find evidence consistent with low levels of individualism being an important factor in explaining the limited participation puzzle.     

Individual differences in a switch from risk‐averse preferences for gains to risk‐seeking preferences for losses: can personality variables predict the risk preferences?

Individual differences on a framing problem and a reflection problem were examined in light of the Myers–Briggs Type Indicator. The predictions on information processing style, derived from Jungian personality type theory, were tested for the much‐discussed framing effect in the Asian Disease Problem and for the reflection effect on which the framing effect presumably depends. As anticipated, the results revealed that business students with higher iNtuition/Extraversion scores and lower Judging score were more likely to be consistently risk‐seeking. Conversely, those with higher Sensing/Judging scores were more likely to be consistently risk‐averse. Both framing and reflection effects were displayed by those with higher Sensing/Judging scores. However, the second expected result was not supported. Rather, a so‐called ‘gray hair/clouds’ effect (effect name inspired by Medin and Shoben's research in 1988), questioning the validity of risk propensity, was observed and analyzed. The somewhat surprising results and their theoretical and practical implications are discussed.     

Is assurance on risk management systems relevant for bankers’ decisions?

Risk management systems (RMS) are an essential element of corporate governance and support companies in managing the omnipresent internal and external risks. Assurance on such systems can support such efforts and add further benefits. This study investigates the impact of RMS assurance on the perceptions and decisions of German bankers, and analyzes whether the assurance provider and the assurance level are relevant to them. We conducted an experiment with 145 bankers, using ANOVA to analyze their reliance on the hypothetical company’s RMS and their decisions regarding lending, recommending investments, and investing in stocks. A 2×2+1 between-subjects design was chosen, and we manipulated the assurance provider (audit firm vs. third-party provider) and the assurance level (limited vs. reasonable), and added a control condition with no assurance. Our results indicate that RMS assurance positively influences banker perceptions and decisions, whereas the assurance provider and assurance level has no statistically significant impact on them.     

Economic democracy: A path for the future?

As opposed to political democracy and its attempts at power control in the public sector, the concentration of economic power, and its antidote, the concept of economic democracy, has received much less attention. In the paper, we first offer a definition of economic democracy as a “a system of checks and balances on economic power and support for the right of citizens to actively participate in the economy regardless of social status, race, gender, etc.” Based on our definition, we suggest six possible faces of economic democracy and look at their implications for the vision of a sustainable, equitable and non-growing society, as discussed within the degrowth movement: (1) Regulation of market mechanisms and corporate activities. Regulation is one of the most obvious paths to curbing economic power, hence we highlight the issue of deregulation vis a vis possible degrowth policies. A revision of the free-market paradigm is suggested. (2) Support for social enterprises. We discuss different forms of democratic governance within enterprises and suggest that co-operative approaches, common in social enterprises, are better suited to a degrowth economy. (3) Democratic money creation processes, including pluralist community currencies, are suggested to counter economic power caused by the practice of fractional banking. (4) Reclaiming the commons (especially in their original sense as communal land stewardship systems) both conceptually and physically is seen by us as an important aspect of enhancing economic democracy. (5) Redistribution of income and capital assets is discussed as another approach to achieving economic democracy. (6) Finally, inspired by Vandana Shiva, we suggest that a broader view of economic democracy would involve a diversity of production scales and modes, including small-scale, subsistence and self-employment.     

What role for social scientists in risk expertise?

When it comes to risks – health and environmental risks, like those linked to the use of nanotechnologies, pesticides, etc. – three main groups of actors are easily identified, brought together through boundary organisations such as environmental and sanitary risk agencies: the natural and technical scientists, who provide their expertise to assess risks (especially toxicologists, epidemiologists and microbiologists); the policy makers, who take decisions regarding risk management and risk regulation; the lay public, who are more and more involved in participatory frameworks. Sometimes three other groups of actors are added: the ‘economists’ who can for instance conduct cost–benefit assessments or multi-criteria analyses (especially ecological economists, public economists, political economists and social economists); the ‘philosophers’/‘ethicists’ who can use ethics to highlight moral choices and responsibilities in face of risks; and the ‘jurists’/‘legal experts’ who can justify authorisation or interdiction according to law. Inversely, there is a group of actors which is not clearly identified, that of social scientists, even though a considerable quantity of social science knowledge on risk has been produced. Why is there such a discrepancy? This article, based on a critical review of the literature, aims to make sense of the fuzziness surrounding the involvement of social scientists when it comes to risk expertise. The article shows that one reason for this puzzling situation is to be found in the gap between what social scientists often want to do when they are called in as risk experts and what natural scientists and public policy makers actually expect from them.     

Food in the future: Does futures studies have a role to play?

Futures studies (FS) has not taken up food as a topic to any degree perhaps because of complexity, gender, urban bias, professional bias, cultural diversity, and fear. But there is a need and responsibility for FS scholars and practitioners to consider the growing and preparation of food in our work. Today's movements in food security, organic farming and Slowfood can direct us towards futures based in healthy, diverse, and joyful communities.     

Misconduct risk in banking services: Does a propensity to be sanctioned exist?

Litigation against a bank is indicative of misconduct risk because it suggests a failure to process customer complaints. This study examines the relationship between certain bank features and potential and actual misconduct based on a panel of complaints submitted to the Italian ombudsman. We find that bank profits and financial health are strong determinants of potential and actual illegal behaviour, respectively. We control for the level of bank-client contentiousness at the national level and bank size and provide some implications for regulators.     

Is gold a safe haven or a hedge for the US dollar? Implications for risk management

We assess the role of gold as a safe haven or hedge against the US dollar (USD) using copulas to characterize average and extreme market dependence between gold and the USD. For a wide set of currencies, our empirical evidence revealed (1) positive and significant average dependence between gold and USD depreciation, consistent with the fact that gold can act as hedge against USD rate movements, and (2) symmetric tail dependence between gold and USD exchange rates, indicating that gold can act as an effective safe haven against extreme USD rate movements. We evaluate the implications for mixed gold-currency portfolios, finding evidence of diversification benefits and downside risk reduction that confirms the usefulness of gold in currency portfolio risk management.