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.

The Influence of International Risk on Entry Mode Strategy in the Computer Software Industry

Abstract: Introduction As the business world becomes more global and the level of international competition continues to increase, managers will find themselves facing increasingly complex strategic decisions. Perhaps first and foremost among these decisions are the decisions relating to methods of expanding the firms' international operations. However, as one considers the prospects of international expansion one can not help but be aware of the many and varied risks facing firms in these "strange new lands." Ghoshal (1987) has postulated that managing risks is one of three strategic objectives for managers of multinational firms. Yasai-Ardekani (1986) has suggested that industry environmental characteristics such as risk, influence management perception which, in turn, leads to an influence on the structure of the organization. Carman and Langeard (1980) have stated that service firms face far greater risks in international expansion than do product firms: (1) the inseparability of production and consumption for services eliminates certain entry mode choices, (2) the lack of visibility of services (intangibility) increases the time needed to diffuse service innovation, and (3) service providers may be perceived by host governments as contributing little to the national economy while draining resources, precipitating regulations that favor domestic service providers over foreign providers. Existing research has shown a relationship between risk and international diversification, i.e. how firms can reduce overall financial risk by diversifying into international markets (see Rugman 1979 for a discussion). Risk has also been shown as a motivation for international expansion, e.g. entry into competitor markets as a bargaining tool through the "exchange of threats" (Casson 1987, Graham 1985, Vernon 1985, Vernon 1974). In addition entry mode research has included "risk" as$a key element in many of their studies of entry mode determinants (Root 1987, Anderson and Gatignon 1986, Hennart 1988, Contractor 1990, Buckley and Mathew 1980). Vernon (1985) and Miller (1992) have suggested that the perception of a more comprehensive "international" risk and the strategic choice of entry mode may be related. They suggest that looking at individual international risks, such as exchange rate or political risks, in isolation of the other international risks results in an incorrect analysis of the internalization question and can lead to an incorrect entry mode choice. This study is part of a more expansive research project designed to measure perceived risks in different parts of the world and relate these risk perceptions to the strategic choices made by managers. To focus in on the risk-strategy relationship, we first identify key components of the international risks involved in strategic decisions making and then we explore ways in which management can minimize the impact of these risks on the firm through the strategies, i.e. entry mode selected. Once a theoretical base is formed, we present the results of a pilot study to test the risk-entry mode relationships, using a small sample of international high-tech service firms. Whet is International Risk? Both Miller (1992) and Vernon (1985) refer to international risk, however only Miller provides details of a three part integration of international risk variables. The three parts consist of (1) general environmental, (2) industry, and (3) firm-specific risks. General environmental uncertainty refers to those variables that are consistent across all industries within a given country. Included in this factor are such variables as political risk, government policy uncertainty, economic uncertainty, social uncertainty, and natural uncertainty (uncertainty caused by nature itself, such as floows or typhoons). Miller's second grouping, industry uncertainty, contains the risks associated with differences in industry/product-specific variables. Among these variables are the input market uncertainties associated with production inputs, such as material/labor supply availability, quality, and quantity. …

Strategic Risk Taking: A Framework for Risk Management

Abstract: Front FlapIn business and investing, risk has traditionally been viewed negatively: investors and companies can lose money due to risk and therefore we typically penalize companies for taking risks. That's why most books on risk management focus strictly on hedging or mitigating risk.But the enterprise's relationship with risk should be far more nuanced. Great companies become great because they seek out and exploit intelligent risks, not because they avoid all risk. Strategic Risk Taking: A Framework for Risk Management is the first book to take this broader view, encompassing both risk hedging at one end of the spectrum and strategic risk taking on the other.World-renowned financial pioneer Aswath Damodarani??one of BusinessWeek's top 12 business school professorsi??is singularly well positioned to take this strategic view. Here, Damodaran helps you separate good risk (opportunities) from bad risk (threats), showing how to utilize the former while protecting yourself against the latter. He introduces powerful financial tools for evaluating risk, and demonstrates how to draw on other disciplines to make these tools even more effective.Simply put, Damodaran has written the first book that helps you use risk to increase firm value, drive higher growth and returns, and create real competitive advantage.·i? i? Risk: the history and the psychologyThe non-financial realities you must understand to successfully manage risk·i? i? Risk assessment: from the basics to the cutting edgeRisk Adjusted Value, probabilistic approaches, Value at Risk, and more·i? i? Utilizing the power of real optionsExtending option pricing models to reflect the potential upside of risk exposure·i? i? Risk management: the big pictureIntegrating traditional finance with corporate strategyi??and using risk strategicallyBack FlapAbout the AuthorAswath Damodaran, Professor of Finance at NYU's Stern School of Business, has been profiled in BusinessWeek as one of the United States' top twelve business school professors. His researchinterests include valuation, portfolio management, and applied corporate finance. He is the author of Damodaran on Valuation; Investment Valuation; The Dark Side of Valuation; Corporate Finance: Theory and Practice; Applied Corporate Finance; and most recently, Investment Fables.Damodaran has published in The Journal of Financial and Quantitative Analysis, The Journal of Finance, The Journal of Financial Economics, and The Review of Financial Studies.Back CoverBeyond Traditional Hedging: How to Use Risk Management Financial Techniques Strategically!·How to determine which risks to ignore, which to protect against, and which to actively exploit·By Aswath Damodaran, leading finance authority and one of BusinessWeek's top 12 business school professors·For every corporate finance executive, manager, analyst, consultant, researcher, and studentIn recent years, risk management has been defined as merely eliminating or reducingrisk exposure. Companies are learning today that is far too narrow and constraining a definition. Risk, exploited judiciously, is absolutely central to business success. In Strategic Risk Taking: A Framework for Risk Management, Aswath Damodaran covers both sides of the risk equation, offering a complete framework for maximizing profit by limiting some risks and exploiting others.Damodaran presents a thorough and insightful review of the state-of-the-art in risk measurement, hedging, and mitigation. He covers a broad spectrum of risk assessment tools, including risk adjusted value, scenario analysis, decision trees, VAR, and real options. But Damodaran goes far beyond other treatments of the subject, helping you decide when to deliberately increase exposure to certain risks, and clearly assess the potential dangers and payoffs of doing so.http://pages.stern.nyu.edu/~adamodar/

Financial globalisation dynamic thresholds for financial development: evidence from Africa

Abstract: Purpose - We investigate if financial development benefits from financial globalisation are questionable until certain thresholds of financial globalisation are attained. Design/methodology/approach - Financial globalisation is proxied with Net Foreign Direct Investment Inflows as a percentage of GDP (FDIgdp) whereas financial development entails dynamics of depth, efficiency, activity and size. The empirical evidence is based on; (i) data from 53 African countries for the period 2000-2011 and (ii) interactive Generalised Method of Moments with forward orthogonal deviations. Findings- The following findings are established. First, thresholds of FDIgdp from which financial globalisation increases money supply are 20.50 and 16.00 for below- and above-median sub-samples of financial globalisation respectively. Second, FDIgdp thresholds from which financial globalisation increases banking system activity and financial system activity for below-median sub-samples of financial globalisation are 13.81 and 13.29 respectively. Third, for financial size, there is evidence of: (i) a positive threshold of 21.30 in the full sample and (ii) consistent increasing returns without a modifying threshold for the above-median sub-sample. Practical implications- Evidence of a positive threshold implies that while the initial effect of financial globalisation on financial development is negative, there is a positive marginal effect, such that at a certain level of FDIgdp (or threshold), the overall effect of financial globalisation on the given financial development dynamic becomes positive. It follows that financial globalisation is both negative and positive for financial development, with a U-shaped relationship. Therefore the appropriate role of policy should neither be to stem the tide of capital flows nor to encourage them, but to understand what levels or thresholds of capital flows are required to benefit domestic financial development. Originality/value- We have extended the debate on initial or threshold conditions for the financial development benefits from financial globalisation by providing policy makers with levels of FDI (as percentage of GDP) that are required to start materialising financial development benefits from financial globalisation.