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

Danijela Miloš Sprčić, PhD (Editor)
Department of Managerial Economics, Faculty of Economics and Business, University of Zagreb, Croatia

Series: Business Issues, Competition and Entrepreneurship
BISAC: BUS033070

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Effective risk management is considered to be a leading competitive advantage that determines the survival and success of a company in an uncertain global environment. The global financial crisis has focused attention on the proper identification, analysis and management of key corporate risks, as inadequate risk assessment and management have been identified as one of the main causes of failure or financial difficulties of numerous organizations worldwide. Hence, inadequate risk management has become a problem of broader social interests, resulting in different regulatory actions like Troubled Asset Relief Program, the Federal Reserve guidance, new rules from the Securities and Exchange Commission as well as in recommendations of the OECD and the European Commission on the necessary changes in the existing risk management systems.

As a result of regulatory actions and recommendations, an increasing number of companies are moving on from traditional silo-based risk management (TRM), where different corporate risks are managed on an individual basis by business unit managers with little or no oversight or communication of how management of particular risk affects corporate strategy and exposure to other corporate risks, toward ERM, which seeks to strategically consider the interactive effects of different risks with the goal of balancing between the dual nature of risk – offer effective protection from threats and seize opportunities. Additionally, Standard & Poor’s refined its ratings process in 2005 for financial institutions, in 2007 for insurance companies, and in 2008 for non-financial companies to incorporate ERM review. Rating agency considerations have brought ERM to the attention of the senior management and boards, encouraging broader implementation of enterprise risk management among companies around the world. The primary aim of ERM is to increase the likelihood that strategic objectives are realized and shareholders’ value is preserved and enhanced. However, by adopting a systematic and integrated approach to corporate risk management, ERM should improve corporate sustainability and lower firm’s overall risk of a failure, making positions for other stakeholders more secure and valuable. An increased awareness on the importance of integrated corporate risk management should result in a better corporate performance, corporate governance and corporate social responsibility, creating a successful and responsible organizations which add value, not only to their shareholders, but also to all stakeholders, society and consequently to the world’s economy.

The edited book presents 14 chapters which relate to different issues and challenges set in front of risk management systems, with an emphasis on the Enterprise Risk Management approach. The book analyses strategic risk management, the role of corporate governance in efficient management of risks, the role of the board in enterprise risk management, COSO’s ERM integrated framework, the role of the audit committee in the risk management process, the role of auditing in reducing the risk of a fraudulent financial reporting, contractual risks, the problem of a segmental financial reporting, the link between derivative usage and corporate hedging theories, credit default swaps and sovereign debt in Eurozone, contagiousness of financial crisis, parametric yield curve models used in valuation and risk management, impact of capital structure decisions on the systematic risk of common stocks, as well as the cases of risk management practices in agriculture and in the electric-power industry.

The book is written for academics as well as for graduate and postgraduate students of Business and Economics with a special interest in Finance and Risk Management. However, this book should attract the attention of professionals who want to read the latest insights in the field of risk management, as the book is written also from the perspective of practical relevance, and should help managers in implementing an effective risk management strategy in their organization. (Imprint: Nova)

Preface

Review I
Darja Peljhan, Ph.D.

Review II
Dimitrios Maditinos, Ph.D.

Chapter 1 - A New Era of Risk Management – An Integrated Approach to Corporate Risks (pp. 1-28)
Danijela Miloš Sprčić, PhD. (Faculty of Economics and Business, University of Zagreb, Croatia)

Chapter 2 - Risk Management and Corporate Governance: Through the Looking Glass (pp. 29-50)
Silvije Orsag, PhD. and Andrija Sabol (Faculty of Economics and Business, University of Zagreb, Croatia)

Chapter 3 - The Role of the Board in Enterprise Risk Management (pp. 51-66)
Darko Tipurić, Ph.D., Marina Mešin, Ph.D. and Katarina Dvorski (Faculty of Economics and Business, University of Zagreb, Croatia)

Chapter 4 - The Role of Audit Committee in the Enterprise Risk Management (pp. 67-96)
Boris Tušek, PhD., Lajoš Žager, PhD. and Ivana Barišić, PhD. (Faculty of Economics and Business, University of Zagreb, Croatia)

Chapter 5 - Risk Management and Contractual Obligations (pp. 97-108)
William V. Rapp (New Jersey Institute of Technology)

Chapter 6 - Link between Corporate Hedging Theory and Derivatives Usage – Evidence from South-Eastern Europe (pp. 109-140)
Danijela Miloš Sprčić, PhD, Željko Šević, PhD. and Petar Sprčić (Faculty of Economics and Business, University of Zagreb, Croatia and others)

Chapter 7 - Credit Default Swaps and Sovereign Debt in Eurozone (pp. 141-170)
Pantelis E. Thalassinos, Ph.D. (University of Glasgow Caledonian, UK)

Chapter 8 - Contagiousness of a Financial Crisis (pp. 171-196)
Ivana Miličić, Srđan Kovačević and Danijela Miloš Sprčić, PhD. (European Bank for Reconstruction and Development and others)

Chapter 9 - External Auditing in the Function of Managing Financial Reporting Risks (pp. 197-220)
Lajoš Žager, Ph.D., Boris Tušek, Ph.D. and Sanja Sever Mališ, Ph.D. (Faculty of Economics and Business, University of Zagreb, Croatia)

Chapter 10 - Segmental Financial Reporting and the Internationalization of the Banking Sector (pp. 221-256)
Eleftherios Thalassinos, PhD. and Konstantinos Liapis, PhD. (School of Maritime and Industrial Studies, and School of Accounting and Business Administration, Panteion University, University of Piraeus, Greece)

Chapter 11 - The Market Index Benchmark and Adequate Compensation for Systematic Risk in an Illiquid and Undeveloped Financial Market (pp. 257-278)
Davor Zoričić, Ph.D., Denis Dolinar and Antonija Kožul, Ph.D. (Faculty of Economics and Business, University of Zagreb, Croatia)

Chapter 12 - The Influence of the Capital Structure on the Systematic Risk of Common Stocks (pp. 279-288)
Antonija Kožul, Ena Pecina and Andrija Sabol (Faculty of Economics and Business, University of Zagreb, Croatia)

Chapter 13 - Risk in Agriculture, Futures and Crush Spread Trading (pp. 289-302)
Aleksandar Šević (Trinity College Dublin, School of Business, Ireland)

Chapter 14 - Enterprise Risk Management in the Electric Power Industry (pp. 303-318)
Dubravka Radić, Ena Pecina and Danijela Miloš Sprčić, PhD. (Faculty of Economics and Business, Croatian Electric Power Company, and University of Zagreb, Croatia)

Index

“I enjoyed reading this book. It competently covers a wide range of concepts for managing risk in a holistic way incorporating interdisciplinary views on the value of risk management. This book equips the reader with the knowledge on different facets of risk management as well as presents important findings as implications for public policy. As such, the edited book collection “Risk Management: Strategies for Economic Development and Challenges in the Financial System” represents a notable contribution to the field of risk management. I recommend the book to academics and professionals and also encourage its use in courses covering risk management.” - Dr. Darja Peljhan, PhD, University of Ljubljana, Faculty of Economics, Slovenia

“The book collection “Risk Management, Strategies for Economic Development and Challenges in the Financial System”, effectively edited by Danijela Miloš Sprèiæ, brings together 14 research and review papers authored by 24 distinguished academics and professionals in Corporate Governance, Management, Finance, Auditing and Public Policy. It brings together ideas, concepts and practices developed in various risk markets and academic fields to provide a much-needed overview of different approaches to risk management. Combining academic severity and practical experience, this book is an important resource for graduate students and professionals concerned with strategic risk management.” - Dr. Dimitrios Maditinos, PhD, Technological Educational Institute of Kavala, Greece

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