The Performance Relationship of Effective Risk Management: Exploring the Firm-Specific Investment Rationale

Long Range Planning

Volumn 41, Issue 2, 2008, Pages 155-176

  Andersen, Torben Juul ^a  

^a NONE

Author keywords

[No Author keywords available]

Indexed keywords

EARNINGS; INDUSTRIAL MANAGEMENT; INNOVATION; INVESTMENTS;

EFFECTIVE RISK MANAGEMENT; FIRM-SPECIFIC INVESTMENT RATIONALS; INVESTORS; STAKEHOLDERS;

RISK MANAGEMENT;

CORPORATE STRATEGY; INVESTMENT; MANAGEMENT; RISK ASSESSMENT;

EID: 42149125445     PISSN: 00246301     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.lrp.2008.01.002     Document Type: Article

References (74)

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53. Different measures of firm risk have been advanced in the literature where the standard deviation in return on assets has emerged as a predominant indicator, e.g. Miller R.M., and Bromiley P. Towards a model of risk in declining organizations. Organization Science 7 (1990) 524-543 Alternative risk management measures could be adopted, e.g., using coefficients of variation instead of standard deviation to reduce potential size effects or capturing market risk as variability in errors around the linear sales forecast to eliminate the influence of sales growth and trend lines. Using these alternative measures in the analyses do not lead to material changes in the results reported here
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62. See, for example. Moeller R.R. COSO enterprise risk management: understanding the new integrated ERM framework (2007), Wiley, Hoboken, NJ
63. This work is influenced by the evolving literature on dynamic capabilities, e.g. Helfat C.E., and Raubitscheck R.S. Product sequencing: co-evolution of knowledge, capabilities and products. Strategic Management Journal 21 (2000) 961-980
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68. See, for example. Minton B., and Schrand C. The impact of cash flow volatility on discretionary investment and the costs of debt and equity financing. Journal of Financial Economics 54 (1999) 423-460
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72. One shortcoming of a more holistic risk management definition is the difficulty of outlining the comprehensive risk management process in minute detail because an integrative approach considers a complex amalgam of practices and techniques that together contribute to limit different downside exposures and increase responsiveness to various opportunities. Conversely, it makes little sense to assess the effect of one specific practice when effective risk management arguably can be ascribed to a multitude of practices combined to deal with a wide diversity of firm-specific exposures. Nonetheless, it does seem important to consider all corporate risk factors, including strategic risks, and incorporate business development and responsiveness practices as essential ways to avoid emerging threats and exploit opportunities with upside potential.
73. The company information and supportive quotes used to characterise the representative firms chosen from the sample are extracted from annual reports and other publicly-available information.
74. Even with these positive risk management prospects, Dell has been affected by periodic quality breaches among key suppliers, which illustrates the importance of managing the firm-specific relationships in essential stakeholder relationships - Press release: Dell to recall 4m batteries, Aug 14 (2006). As Dell has continued to expand its market reach, the celebrated 'direct model' has also shown some shortcomings in its ability to assimilate customer needs in the mass markets for private individuals and households.