Financial risk

About: Financial risk is a research topic. Over the lifetime, 11899 publications have been published within this topic receiving 231404 citations. The topic is also known as: economic risk.

Credit risk and financial instability

Abstract: Recent advances in modelling credit risk bring much greater discipline to the pricing of credit risk and should promote diversification by penalizing concentrations of credit risk with greater allocations of economic capital. Although these models perform well with regard to high-frequency hazards, they are ill equipped to deal with the low-frequency, high-severity events that are likely to be the most serious threat to financial stability. Cognitive biases in estimating the probability of such losses may lead to disaster myopia. In periods of benign financial conditions, disaster myopia is likely to lead to decisions regarding allocations of economic capital, the pricing of credit risk, and the range of borrowers who are deemed creditworthy, that make the financial system increasingly vulnerable to crisis. Alternative policy measures to counter disaster myopia are considered.

Essentials of financial risk management

Abstract: Preface Acknowledgments 1 What Is Financial Risk Management? 2 Identifying Major Financial Risks 3 Interest Rate Risk 4 Foreign Exchange Risk 5 Credit Risk 6 Commodity Risk 7 Operational Risk 8 Risk Management Framework: Policy and Hedging 9 Measuring Risk 10 Global Initiatives in Financial Risk Management Appendix Index

Boards of Directors and Financial Risk during the Credit Crisis

Abstract: Research Question/Issue This research examines the relationship between board processes and corporate financial risk. Using a unique questionnaire survey about board behavior, several measures related to board processes are developed and used to explain certain aspects of financial risk during the recent crisis. Research Findings/Insights In a sample of 141 companies with complete data collected from company chairs on both board structure and process, board process is found to be an important determinant of financial risk during the crisis of 2008–2009. In particular, financial risk is lower where non-executive directors have high effort norms and where board decision processes are characterized by a degree of cognitive conflict. The impact of cognitive conflict is, however, found to be less pronounced in boards with high levels of cohesiveness. Theoretical/Academic Implications The study provides theoretical and empirical advancement of the governance literature towards an understanding of group process-oriented views of boards' work and effectiveness. This study identifies the significance of board processes and their impact on financial risk supported by quantitative empirics. Findings of a strong relationship between board process and financial risk augment existing theories to suggest that the effects of boards work through group processes that bring executives and non-executives together in relations laced with control and collaboration. Practitioner/Policy Implications Regulators, acting post the financial crisis have produced governance codes that emphasize risk management as a key responsibility of boards. The link between board process and financial risk established in this paper provides evidence for company chairs and other directors on the possibilities and potential effectiveness of boards in discharging this responsibility.