Risk Research Articles

Insurance business and social sustainability: A proposal

Sustainability issues are emerging as a major focus for the insurance institutions, who have to face a number of challenges of the immediate future regarding environmental, social and governance (ESG) factors, climate changes, and catastrophic events. Despite this, literature is still scarce. In this vein, our work contributes to the small but growing body of literature on sustainable finance insurances, by providing evidence of the positive role that insurance companies can play in realizing a more sustainable financial system. The study proposes an innovative securitized process, described as a financial cycle oriented to the achievement of the social objective of collective health. Sustainable instruments allow firms, insurance companies and investors to play a proactive role: virtuous companies, attentive to health protection of their employees, could benefit from premium discounts on the costs of insurance coverage for business risks. The analysis demonstrates how the securitization scheme supports projects with economic-social impact, underlining main actors’ roles, challenges, and opportunities for a sustainable future. Findings pave the way for designing new sustainable insurance solutions and have both practical and social implications.

CEO foreign experience and corporate financial investment

Using a hand-collected sample of CEOs' foreign experience data for Chinese listed firms from 2008 to 2018, we investigate the impact of CEO foreign experience on corporate financial investment behaviors. We find a significantly negative association between CEO foreign experience and risky financial investment and a significantly positive association between CEO foreign experience and safety financial investment, suggesting CEOs with foreign experience can help constrain their firms' risky investment. The result is robust to Heckman two-stage analysis, instrumental variable approach, propensity score matching, and other robustness tests. Further analyses reveal that CEOs with foreign experience act as a key role of inhibiting the risky financial investment when firms have suffered poor internal or external corporate governance. Moreover, the relation between CEOs' foreign experience and financial investment is more pronounced when CEOs have financial background or CEO's tenure is shorter. The relation between CEOs' foreign experience and financial investment is more significant when CEO's overseas background belongs to a common law country or region. After replacing the dependent variable, this paper finds that CEO's overseas background also inhibits firm's share price risk and business risk. Finally, this conclusion is consistent with the CFO's overseas experience as the research object. Overall, the findings suggest that CEO foreign experience matters for corporate financial decisions in emerging markets.

Evaluating Public-Private Partnership Dynamics: the Kazakhstan Toll Road Case

The holistic collaboration between the government and business through public-private partnerships (PPPs) is crucial in developing economies in transition. With the help of the PPP mechanism, emerging economies realize new and maintain existing social and economic infrastructure projects in education, energy, transportation, and healthcare. This lessens the funding burden on the state budget and attracts private investment and expertise into the economy. However, one of the critical tasks is to engage a suitable private partner with whom a long-term relationship can be built for mutual benefit. The most vital issue in establishing and maintaining the PPP collaboration with such a partner is related to the appropriate management of business risks. This study focuses on the success of an infrastructure project for a private partner by analyzing the critical risks inherent in PPP projects. The research uses system dynamics (SD) modeling, which qualitatively and quantitatively determines how each risk affects the project realization. The study examines the largest PPP project in Central Asia, the Big Almaty Ring Road. This toll road project is taken as a case to demonstrate the impact of the most critical risks on the success of the PPP projects. For the simulation, the “hard tolls” form, which is one of the popular payment mechanisms in the global PPP practice, is considered where the private partner bears most of the risks. The findings show the riskiness of such a payment mechanism in implementing toll road projects with existing traffic and tariffs under conditions of uncertainty typical for Kazakhstan and other similar developing countries.

Impact of Microfinance Institutions Lending on SMEs Growth in Zimbabwe

This study investigated on the impact of microfinance lending on Small to Medium enterprises (SMEs) growth. This study adopted pragmatism philosophy wherein both positivism and interpretivism approaches were deployed. This study also adopted descriptive and explanatory research designs; the explanatory design for quantitative research and the descriptive survey for qualitative research. Proportionate stratified random sampling was used to select respondents that participated in questionnaires and judgemental sampling to select respondents who participated in interviews. Data was collected through the use of questionnaires with closed ended questions and interview guide instruments. Data was analyzed using Statistical Package for Social Sciences (SPSS), Thematic Approach, Microsoft Excel, and Microsoft Word packages. The study found that MFIs sell financial and non-financial products to clients. MFIs provide basic business skills, help with capital investment decisions, general business management and risk management. This finding extends the current body of knowledge on microfinance institutions lending impacts on SME growth. The study recommends that leadership strategy is one of the important strategies that can be embraced by MFIs to enable them survive competition in the market. MFIs need to increase flexibility, use holistic and innovative financing, employ research, take advantage of technology and make lending personal to SMEs. Because the transactions are frequently small and the clients are mostly from difficult-to-reach locations, most formal financial institutions regard the poor as high risk and high cost. Microfinance institutions must break these barriers. This allows low-income families (SMEs) to stabilize their income flows and save for future needs. MFIs need to keep on providing their services to SMEs. MFIs also need to keep providing business training to equip SMEs with requisite skills in savings mobilization and micro enterprise investment options. Policymakers and other social partners must develop and implement strategies to boost SME growth in their respective countries. To build a knowledge base for SME growth, authorities at the local, national, and regional levels must conduct evidence-based analysis to feed social dialogue and policymaking processes.

The Problem of Defining Insurance of Business and Financial Risks in Russian Legislation

The development of Russian insurance legislation is associated with the presence of certain differences in the legal regulation of the insurance business; in particular, there is the problem of classifying certain types of insurance: business insurance and financial risk insurance. The purpose of the study is to consider sequentially the main stages of the development of insurance legislation in terms of insurance of business and financial risks, which would allow us to identify, on the one hand, the reasons for changes in insurance legislation, and, on the other hand, to form the authors’ own standpoints on this issue and draw appropriate conclusions. The article examines the changes made to national insurance legislation over the course of a quarter of a century, and identifies contradictions and differences in the definitions of insurance of business and financial risks. The authors have drawn the conclusion that there is a global cause of the observed phenomena, which is the absence in our country of a single codified normative legal act regulating insurance relationships — the Insurance Code. According to the authors, the development and adoption of such a systematic set of insurance legislation would be the most important step towards solving the problem of classifying types of insurance, in particular business risk insurance and financial risk insurance.

ESG performance and business risk—Empirical evidence from China's listed companies

Under the dual-carbon background, enterprises' ESG performance and sustainable development capability have become a topic of great concern to all sectors of society. The ESG industry in China is very young, and there isn't much research looking at how ESG performance relates to business risk for corporations. This paper empirically tests the impact of firms' ESG performance on their business risk. It discusses the mechanism from the viewpoints of financing constraints and agency costs, the moderating role of economic policy uncertainty, and the analysis of differences in corporate size. The results indicate that firms with strong ESG performance experience a significant reduction in business risk. These firms face lower financing constraints and agency costs, which contribute to the mitigation of business risk. Furthermore, economic policy uncertainty moderates the link between ESG performance and business risk. Additionally, the influence of ESG performance on business risk is more significant in larger-scale companies.

CATFISH CULVATION (Pangasianodon hypopthalmus) BUSINESS INCOME WITH PRODUCTION RISKS IN BANJAR DISTRICT, SOUTH KALIMANTAN PROVINCE

Catfish (Pangsianodon hypopthalmus) is a type of economical fish that is quite popular with the public. Production of Catfish cultivation in Banjar Regency has decreased, due to flooding as a factor influencing production risk. The existence of production risks in the Catfish cultivation business also greatly influences the income of Catfish cultivators. The aim of this research is to analyze the income of Catfish cultivation businesses in the presence of production risks. This research was conducted in Martapura District and West Martapura District, Banjar Regency. The number of Catfish cultivators in the sample was 41 respondents. The type of data used in This research was used panel data. Business income is analyzed using the R/C ratio and the value of expected income when production risks occur is measured using expected return. The results of the analysis show that the Catfish cultivation business has an R/C ratio > 1 and the expected return value is positive, namely IDR 5,431,767.27. The probability that there is a production risk, namely flooding, shows that the Catfish cultivation business in Banjar Regency is efficient and therefore feasible to run.

Environmental policy and audit pricing

AbstractThis paper examines the effect of environmental policy stringency (EPS) on audit pricing. By exploiting the exogenous variation in environmental policies across 26 countries, we find that firms in countries with more stringent environmental policies incur lower audit fees. The inverse association is more pronounced in common law countries, in countries with a higher level of public enforcement of regulations and in countries with more investor protection. The lower audit fees are also more prominent for firms that are followed by more analysts and firms that have a greater institutional ownership. Furthermore, we find that firms in countries with strong regulations are better and more innovative at managing environmental risk, which implies that better environmental performance of the firms following stronger regulations could lower business risks and thus decrease audit fees. Overall, our findings suggest that compliant firms benefit from EPS.

The Dominant Effect of Profitability, Business Risk, Company Size and Leverage on Tax Avoidance with Good Corporate Governance as a Moderator

This study aims to prove which variable has the most dominant influence between the variable Profitability with a proxy for Return on Assets, Business Risk, Company Size/UP and Leverage with a debt-to-asset ratio (DAR) to ETR/Tax Avoidance. Corporate governance moderates variable profitability, business risk, firm size, and leverage with tax avoidance. Twenty-eight manufacturing companies were the object of research and listed on the IDX, and for three years, there were 84 companies as samples. The research method is a quantitative method that is analyzed using statistical applications. Meanwhile, based on statistical data, the results obtained on the variable Firm/UP Size have the most dominant influence compared to those studied on tax evasion. Meanwhile, the business risk variable with the most dominant tax avoidance with good corporate governance as a moderator has a role, while the leverage variable with tax avoidance with good corporate governance has no role. This research has implications in the field of financial ratios and taxation, and for further research

Digital HP finance's role in the economic resilience of enterprises’ digital transformation

To promote digital transformation by enterprises and provide more convenient and efficient financial services, this study analyzes enterprise digital transformation's promotion mechanism and economic influence factors globally and clarifies the role of inclusive digital finance in self-regulation and reducing financing difficulties during enterprise transformation. Finally, an economic resilience model is constructed to select parameters of economic factors, refined into two dimensions: enterprise transformation ability and enterprise upgrading ability. The digital economy is found to be conducive to improving the gross profit margin of enterprises with a significance greater than 0. A regression analysis shows that the estimated coefficients of the digital financial inclusion index, breadth of coverage, and depth of use are all significantly positive, and the different nature of the firms passes the significance test at the 1 % level. Thus, inclusive digital finance reduces the business risk of digital transformation and promotes the development of enterprises in the direction of specialization and innovation.

How Do Entrepreneurs Hedge?

The article provides an in-depth analysis of how entrepreneurs strategically construct their investment portfolios to hedge against risks associated with their business ventures. It delves into the different types of investment assets, both risky and riskless, that entrepreneurs incorporate into their portfolios. The focus is on understanding the balance between diversifying risks through a variety of investments and limiting overall risk exposure by including more stable, riskless assets. This approach aids entrepreneurs in safeguarding their personal financial status against the uncertainties inherent in their businesses. It explores two hypotheses: 'diversify risks’, where entrepreneurs invest in a variety of risky assets for risk diversification, and 'limiting risk’, where investments in riskless assets aim to reduce overall risk. The analysis addresses the endogeneity of being an entrepreneur by using parental background as an instrumental variable and finds a preference among entrepreneurs for the risk diversification approach to mitigate their business risks.

Research on dynamic behavior hedging of corn price risk based on the LA-DCC-GARCH model under COVID-19

The ravages of COVID-19 have had a huge impact on the global economy, and in the grain market, grain prices have fluctuated greatly due to the impact of factors such as rising circulation costs and sudden panicky demand, which has increased the business risks of sellers and deep-processing enterprises. To effectively reduce and avoid the risks brought by COVID-19, this paper takes utility maximization as the goal and helps grain enterprises manage grain price risks by constructing optimal dynamic behavioral hedging strategies. Therefore, this paper first measures the corn price risk during COVID-19, and then, fits the corn spot and futures yield fluctuations based on the DCC-GARCH model, which highlights the model’s advantages for portraying the corn spot and futures price fluctuations during COVID-19. Subsequently, the dynamically optimal hedging ratio is solved from the perspective of behavioral hedging by combining the loss aversion (LA) utility function. Finally, the LA-DCC-GARCH model is compared with the Minimum variance (MV)-DCC-GARCH model in terms of hedging performance, which highlights the conclusion that the behavioral hedging strategy significantly outperforms the traditional hedging strategy.

CHALLENGES IN THE IMPLEMENTATION OF MUDHARABAH FINANCING IN THE ISLAMIC BANKING INDUSTRY

In recent decades, the proliferation of Islamic banking has rendered it a significant entity in the global financial arena, captivating numerous entrepreneurs and businesses with its ethically distinctive financing alternatives. Several Islamic financial institutions adhere robustly to the profit-sharing principle, notably via mudharabah, in product financing. This research paper explains why mudharabah contracts are used in Islamic banking products, focusing on financing schemes, literacy, and the lack of equal access to information. Moreover, within the context of Islamic FinTech, this research highlights high business risk as a pronounced impediment to the efficacious implementation of mudharabah. In addition, this study offers a rigorous analysis of the issues and challenges endemic to mudharabah financing, venturing into perspectives from regulators and Islamic bank customers. This paper utilized a literature review methodology, and data extracted from relevant literature is systematically analyzed to evaluate mudharabah products as a viable business financing model. Conclusively, the insights derived from this research are positioned to formulate strategic recommendations, fostering advancements in implementing mudharabah contracts within Islamic product financing.

Risk and Return Trade off: A Study of Indian Pharmaceutical Sector's Stocks

The Pharmaceutical sector experienced major shifts and obstacles as a result of the COVID-19 pandemic. In the post-pandemic era, the industry's continued significance and prominence can be attributed to a multitude of factors. The market prices of Pharma equities have risen substantially as a result of the expansion of the Pharmaceutical industry, which has also garnered the interest of numerous investors. Policies and efforts taken by the government include increasing foreign direct investment, research and development, and a focus on healthcare infrastructure has led to the tremendous growth of Pharmaceutical businesses in India. In order to make well-informed investment decisions, investors, financial analysts, and decision-makers rely heavily on the risk and return characteristics of businesses. The utilisation of risk and return profiles enables stakeholders and investors to assess the long-term financial performance of a company. 17 Pharmaceutical companies out of 20 Pharmaceutical companies in India's Indexed Nifty Pharma Index are included in the sample. The daily returns of a subset of companies were evaluated for the years 2013 to 2023. The retrieved data was used to compute the daily average return, standard deviation, variance, and beta for each selected company, in addition to the Nifty Pharma Index. The correlation coefficient was also computed for each individual stock and the NSE Nifty Pharma Index. Utilising the Sharpe ratio, Treynor, Jensen Alpha, and M square formulas, the most volatile stocks were determined in the Pharmaceutical sector.

Corporate diplomacy: the dimensional structure and outcomes

PurposeGiven the great upheaval in the international situation and the increasing operating risk in international business, research on corporate diplomacy is thriving. However, it still lacks clear conceptualization and operationalization. Based on social capital theory, our study conceptualizes corporate diplomacy as a three-dimensional construct and quantifies its distinct and combined impacts on multinational enterprises’ (MNE) subsidiary performance.Design/methodology/approachThis research analyzes 134 responses collected from a questionnaire survey among key informants in Chinese MNEs using the regression method.FindingsThis research finds that corporate diplomacy is positively correlated with MNEs’ subsidiary performance. Specifically, compatriot-oriented diplomacy is the most effective, followed sequentially by host-partner-oriented and host-regulator-oriented diplomacy. In addition, compatriot-oriented diplomacy substitutes for host-partner-oriented diplomacy but complements host-regulator-oriented diplomacy in enhancing subsidiary performance.Originality/valueOur research enriches the conceptualization and operationalization of corporate diplomacy and provides a nuanced view of its distinct and combined effects on MNEs’ subsidiary performance.

The Effect of the Characteristics of the Audit Firm and Client on the Application of the Business Risk Audit Approach

The purpose of this study is to identify the impact of certain fundamental characteristics of audit firms and their clients on the application of the business risk audit approach in Yemen, as well as to identify the responses implemented by these firms and companies to these characteristics. The study uses a descriptive-analytical approach, where the data collected through the questionnaire are described and analyzed using appropriate statistical methods. The study sample included 60 auditors from 42 audit firms and 8 individual offices, with a focus on larger offices and those associated with international audit offices, as they are more likely to apply the business risk-based audit approach. Data was sourced from the Ministry of Industry and Trade’s publications on licensed audit offices. Out of 50 electronic and 10 paper questionnaires distributed, 38 responses were received, representing a response rate of 63.33%. The results showed that the characteristics related to the audit firm have a varying impact on the application of the business risk audit approach and that the specialization of the audit firm in the client's business is the most influential factor in this regard. The results also showed that the characteristics related to audit clients do not affect the application of the business risk audit approach, indicating the existence of other factors that may affect this approach. This study is one of the few studies that address the application of the business risk audit approach in the Yemeni context, highlighting the factors affecting this application and its challenges. The study also provides some recommendations to improve audit quality and deal with business risks.

From a business risk to full-scale crisis: the understanding of ‘climate threat’ in the World Economic Forum’s Global Risks Reports

ABSTRACT This article suggests that the business sector’s engagement in climate governance is not only expanding but also providing them with an increasingly influential role in determining how climate risks are framed and addressed. Using the methodological tools provided by the poststructuralist hegemony and discourse theory, the article analyses how the World Economic Forum has framed climate change as a security issue through its Global Risks Reports and what forms of authority and practice are promoted by this understanding.

Do entrepreneurs use cryptocurrency to hedge against their business risk?

This paper studies if entrepreneurs use cryptocurrency to hedge against business risk. Cryptocurrency is a newly emerging asset class that distinct from other traditional asset classes and less been analyzed from the entrepreneur's perspective. To implement the analyses, we address the endogeneity issue of being an entrepreneur using parents background and show that entrepreneurs prefer risk diversification hypotheses to hedge against their business risks.

Analisis Struktur Modal Pada Perusahaan Asuransi Yang Terdaftar Di Bursa Efek Indonesia Periode 2019-2022

Knowing the results of tests on the influence of profitability, business risk, sales growth and company size on the capital structure of insurance companies listed on Indonesia Stock Exchange is the aim of this research. The theory used is pecking order theory. Purposive sampling is the chosen sampling method. There are 18 insurance companies as sample companies registered on the Indonesian Stock Exchange and this has been processed for 4 years, resulting in 72 observations. The type of data used is secondary data in the form of financial reports of insurance companies that are registered on the Indonesia Stock Exchange for the 2019-2020 period. The analytical method used is multiple linear testing using the SPSS version 27 application. After testing and analyzing the data, the results show when partially profitability has a negative influence on capital structure. Partially, business risk, sales growth and company size have no influence on capital structure.

Impact of Business Risk and Board of Directors Size on Dividend Policy in ASEAN-5 During the COVID-19 Pandemic

The objective of this investigation is to scrutinize the determinants influencing the dividend policies of financial sector firms listed on the stock exchanges in each of the ASEAN-5 countries, namely Indonesia, Malaysia, the Philippines, Singapore, and Thailand. Employing a purposive sampling method, this research encompasses a sample of 195 companies meeting specific criteria during the COVID-19 pandemic spanning from 2020 to 2022. Researchers employed a probit model logistic regression, utilizing Eviews 12 software, to assess the impact of business risk and board size on dividend policy. The outcomes indicate that the independent variable of business risk exerts a negative influence on dividend policy, whereas the independent variable of board size exhibits a positive effect. Additionally, the research introduces a control variable, Gross Domestic Product (GDP), revealing a negative impact on dividend policy. The outcomes of this research serve as a managerial tool for enhancing company performance and augmenting dividend disbursements, thereby capturing the attention of shareholders.