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.

Integrated Risk Management and the Role of the Risk Manager

Abstract: Although the transferring of a firm's pure risk historically has been conducted through the insurance and reinsurance markets, risk managers of large corporations are reportedly becoming more sophisticated with regard to their risk financing strategies. This increased sophistication has come in the form of greater use of techniques such as captives, finite risk insurance, financial reinsurance, and risk retention groups. The purpose of this study is to assess the characteristics and extent of integrated risk management. Using survey data, we evaluate several aspects of risk management integration, including (1) the extent to which risk managers are involved in managing both pure and financial risks facing their firms, (2) the nonoperational types of risks handled by risk managers and the techniques being used to handle a broader set of risks, and (3) the effect that factors such as the size of the firm, the firm's industry, and the background and training of the risk manager has on participation in integrated risk management activities.

Hidden Power of the Big Three? Passive Index Funds, Re-Concentration of Corporate Ownership, and New Financial Risk

Abstract: Since 2008, a massive shift has occurred from active towards passive investment strategies. This burgeoning passive index fund industry is dominated by BlackRock, Vanguard, and State Street, which we call the ‘Big Three’. This paper is the first to comprehensively map the ownership of the Big Three in the United States. We find that already in 40 percent of all listed U.S. corporations the Big Three together constitute the largest shareholder — and even in 88 percent of the S&P 500 firms. This re-concentration of ownership is unprecedented and unlike the earlier ascent of actively managed mutual funds, such as Fidelity, is likely here to stay. In contrast to active funds, the Big Three hold illiquid and permanent ownership positions, which gives them stronger incentives to actively influence corporations. We find that they indeed utilize coordinated voting strategies but generally vote with management, except at director (re-)elections. Private engagements with management represent an important channel through which the Big Three exert influence. Moreover, BlackRock, Vanguard, and State Street are arguably exerting ‘hidden power’ because company executives are likely to internalize their objectives. Finally, we find indications that this development entails new forms of financial risk, including anticompetitive effects and investor herding.