Analysis on the Efficiency of Risk Management in the Chinese Listed Companies

Chien-Ming Huang,Ren-Qing Zeng,Wei Yang

doi:10.3390/math8101831

Abstract

Since a firm’s profitability is associated with a degree of risk taking, risk indicators have been extensively treated as exogenous variables and affected firm performance. The level of risk taking should be determined through internal control quality and firm-specific characteristics to effectively understand the relationship between risk management and firm performance. This study aims to investigate the effects of risk management efficiency on the production efficiency of Chinese listed companies from 2002 to 2016 using the two-step data envelopment analysis (DEA) approach. Empirical results indicate that risk management differs from traditional financial theory, which means that high-level risk would earn high expected returns. Firms with a low efficiency index of enterprises risk management will have low performance. In particular, internal controls were significantly improved after the 2008 financial crisis. Our overall results also suggest that information asymmetry is still a problem in financial markets. To achieve maximum benefits for shareholders and improve the quality of information disclosure, methods for enacting market regulations are still very important issues in China.

Highlights

Ever since the financial crisis of 2008, enterprise risk management (ERM) has become an important topic
In the existing risk management literature, many studies have focused on investigating operating efficiency [1], evaluating the added value of risk undertaking [2], and measuring the risk exposures of business [3], they have ignored the effects of internal controls on different risk categories, further affecting firm performance
Given the relevance of ERM, we found that the ERM program did not bring essential benefits to firm performance

Summary

Introduction

Ever since the financial crisis of 2008, enterprise risk management (ERM) has become an important topic. In the existing risk management literature, many studies have focused on investigating operating efficiency [1], evaluating the added value of risk undertaking [2], and measuring the risk exposures of business [3], they have ignored the effects of internal controls on different risk categories, further affecting firm performance. As far as market investors are concerned, considering the corporate governance mechanism and firm-specific characteristics is necessary to have a proper understanding of the efficiency of risk management affecting changes in a firm’s performance. The authors attempt to measure the efficiency of risk management and explore the relationship between ERM and operating performance. Over the period from January 1998 to April 2019, the number

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