Impediments to Communication in Financial Institutions: Implications for the Risk Management Organization |
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Authors: | Dirk Höring Helmut Gründl Sebastian Schlütter |
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Affiliation: | 1.International Center for Insurance Regulation,Frankfurt am Main,Germany;2.Faculty of Economics and Business Administration, International Center for Insurance Regulation,Goethe-University Frankfurt,Frankfurt am Main,Germany;3.Department of Business,University of Applied Sciences Mainz,Mainz,Germany |
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Abstract: | This article investigates the question of how risk management should be embedded in a financial firm’s hierarchy. We answer this question by combining capital market theory with game-theoretic thinking. We develop a theory for the integration of risk management into an organization, based on private information and differences in preferences. Our model compares the payoffs from uninformed decision-making, solo decision-making, joint voting decision-making, and coordinated decision-making when information about a project’s expected return and risk is dispersed in the organization. Our findings have a number of implications for the organization of risk management. |
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