Naslov
Risk Management and Corporate Governance: Through the Looking Glass

Autori
Orsag, Silvije ; Sabol, Andrija

Vrsta, podvrsta i kategorija rada
Poglavlja u knjigama, znanstveni

Knjiga
Risk Management: Strategies for Economic Development and Challenges in the Financial System

Urednik/ci
Miloš Sprčić, D.

Izdavač
Nova Science Publishers

Grad
New York (NY)

Godina
2014

Raspon stranica
29-49

ISBN
978-1-63321-539-9

Ključne riječi
risk management, corporate governance, risk of the firm, strategic risk management, financial supervision

Sažetak
In this chapter we discuss risk management and corporate governance practices in modern companies under conditions of high internal and external environment complexity and high turbulence. Corporate governance refers to system of rules, structures, practices and processes by which a company is directed and controlled. It primarily deals with the principal-agent problem and asymmetry of information. Regardless of the interests of other stakeholders, corporate governance is always focused on satisfying the interests of the owners. Their interest can be viewed through the long-term increase in stock value. Since value is subject to interdependence of risk and reward, risk management is a tool for managing long-term value for shareholders and therefore a part of corporate governance. Managing the risk of the firm must be directed toward the main goal of increasing the wealth of shareholders. We discuss business and financial risk and the effects they have on the risk of the firm. We also look at the effects that various types of risk have on the cost of capital. We briefly discuss the fact that in the situation of high complexity of the internal and external environment of the firm models and methods of risk management that rely on feedback control may not be sufficient. There is a need for the use of strategic risk management methods which are based on the use of feedforward control, such as scenario planning, strategic games and simulations. Further on we discuss the issue of the use and misuse of financial statements. Traditionally, financial supervision affects financial reporting in terms of ensuring necessary data for the supervision of financial institutions and preserving the confidence in the financial system. Fair value concept of financial reporting deals mainly with firm risks for the firm’s creditors. However, equity investors need additional information on risks associated with the uncertainty of future rewards. We conclude that risk management has become an extremely researched academic field. It has also become increasingly formalized as part of corporate governance since the regulation of the United States capital market initiated the use of risk management practices in non- financial public companies. Although formal practices of risk management increase costs of public companies, the upside is that investors are willing to pay a premium so as to reward efficient risk management practices.

Izvorni jezik
Engleski

Znanstvena područja
Ekonomija

POVEZANOST RADA