Non-financial Risk Research Articles

Application Of The Utmost Good Faith Principle In Life Insurance Business Management In Indonesia

The study focused on the purpose of this writing is to find out the application of the principle of utmost good faith in life insurance. The research method used in this study is to use data collection methods in library research or library research. In this literature study the author obtains the materials and library materials needed by studying books, writings, journal citations and statutory and legal products that are related to the subject matter according to topics in Indonesia so that it can be concluded that: first, legal principles in insurance coverage include insurable interest, utmost good faith, indemnity principle, subrogation principle, causaliteit principle, contribution principle, cause principle, follow of fortune. Second, the types of risk in insurance are pure and speculative risk, diversifiable and non-diversifiable risk, company risk, systemic risk, financial and non-financial risk, individual and group risk, static and dynamic risk. Third, the application of the principle of utmost good faith in life insurance is very important, because if there is submission of information and information that is incorrect, it can result in the insurance agreement being cancelle.

Preventing Merger and Acquisition Risks: Evidence from Tianqi Lithium's Leveraged Acquisition of SQM

With the deepening of China's opening-up process and the promotion of the "Belt and Road" initiative, the wave of cross-border mergers and acquisitions by multinational corporations has officially started. Leveraged buyouts, as a special way for companies to carry out cross-border mergers and acquisitions, have also attracted the attention of enterprises and have been widely used. On this basis, this paper selects the 2018 Tianqi Lithium acquisition of SQM case, introduces the background and details of the acquisition, and analyzes the financial and non-financial risks brought by the acquisition. Furthermore, the paper investigates how the company solved the debt crisis and the impact of the acquisition on its profitability. Based on the above analysis, there are significant risks in pricing, financing, and debt repayment for the Tianqi Lithium acquisition. Recommendations for relevant enterprises on how to prevent financial risks are also provided. Overall, the analysis of the Tianqi Lithium-SQM leveraged buyout case sheds light on identifying and managing financial risks associated with cross-border leveraged buyouts, guiding further exploration of this topic.

Do free-floated shares and board characteristics influence corporate risk disclosure? An empirical analysis on conventional banks in a developing country

Purpose This study aims to explore the status and drivers (including free-floated shares, board size, rule duality and board independence) of corporate risk disclosure (CRD) for the conventional listed banks in the Egyptian stock market from 2010 to 2021, which include the country’s major political upheavals and the COVID-19 pandemic. Design/methodology/approach This study based on a sample of 117 annual reports of sampled banks from 2010 to 2021. RD index of Al-Maghzom (2016) was developed and adopted to quantify CRD using an unweighted scoring system. The multiple linear regression model was used to validate the hypotheses. Findings The analysis shows that the COVID-19 pandemic increased insignificantly disclosure of all risks except for segment risks. In addition, findings reveal that all sampled banks adhere highly to the requirements of mandatory RD, with a low level of adherence to voluntary RD. Moreover, the analysis concluded that the board size and free-floating shares positively affect the disclosure of financial, operational, general information. Research limitations/implications The study’s limitations include the content analysis methodology, reliance on annual reports, emphasis on financial and non-financial risks, focus on listed conventional banks in Egypt. Practical implications Current study’s findings are more likely to be useful for many parties. It informs investors about the characteristics of the boards’ directors of Egyptian listed banks that disclosed risk information. Banks should disclose more comprehensive risk information. For academics, the current study’s limitations can be considered in their future research. Originality/value This work fills a new research area in which there is relatively little research in emerging financial markets that adds new evidence to the relationship between RD and both free-floating shares and board characteristics, particularly in Egypt.

A Case of Risk Management Control and Its Study in Non-Financial Risks

The objective of the research work was to establish the context of non-financial risks in the company Brad of Wales, and it is recommended that they be managed as soon as possible, considering the low level of maturity of this international company. The applied paradigm was qualitative, the research method was descriptive, and the research tools were case studies. It was able to be carried out due to the adversities suffered in the company studied due to the pandemic and that generated risks that must be managed, adding to this new risks such as climate change, sustainability and social responsibility of the entity. Among the most important findings of this work, it was detected through an internal control survey with a focus on risks; a low level of maturity, explained by low risk assessment. In addition, the compliance risk showed a high level of criticality because basic risk management standards for any organization are not being considered by the regional corporate governance. And, therefore, a great opportunity was evidenced, not only at the local level, but also at the corporate level, for the application of the best practices around corporate risk management.

The 3-step hedge-based valuation: fair valuation in the presence of systematic risks

AbstractIn this paper, we introduce the 3-step hedge-based valuation for the valuation of hybrid claims. We consider an insurance portfolio which is exposed to traded risks, diversifiable risks and non-traded systematic risks. The class of 3-step hedge-based valuations is equivalent with the class of fair valuations. Closed-form solutions are derived for a portfolio of unit-linked contracts under the assumption of independence between financial and non-financial risks. We also consider the additive 3-step valuation and show that this additive valuation is a member of the more general class of 3-step hedge-based valuations.

Is this rating worth it? The benefits of credit ratings in the dynamic tradeoff model

PurposeThis study seeks to identify the main determinants of the optimal capital structure by reexamining the interpretation of the conventional set of explanatory variables used as proxies for the costs and benefits of debt in the context of the dynamic tradeoff theory.Design/methodology/approachThe authors isolate the variation in leverage due to different targets from that caused by deviations by aggregating the data across a dimension identifying firms with similar targets – credit rating category.FindingsContrary to theoretical priors, large and profitable rated firms have lower targets. The authors show that size and profitability proxy for non-financial risk and that, for rated firms, non-financial risk is positively correlated to the optimal leverage. The benefits of a better rating outweigh the costs of foregone tax shields for firms with relatively low non-financial risk. The authors find support for that theory in institutional trading – institutional investors do not punish highly rated firms when credit downgrades occur.Originality/valueThis paper contributes to the capital structure literature by developing a new approach based on data aggregation. This study is the first, to the authors’ knowledge, to find a positive effect of the firm's non-financial risk on target leverage among rated firms. The authors argue that the benefit of a better credit rating is an increasing function of the rating itself. The authors also contribute to the literature on the impact of credit ratings on the capital structure choices of the firm.

Audit of non-financial reporting

The paper analyzes scientific sources and highlights the meaning of the concept of "non-financial reporting" and gives the features of non-financial reporting. The influence of non-financial risks on increasing financial value is also substantiated. Introduction. Capital market participants are increasingly prioritizing the importance of non-financial information. Sustainability and non-financial reporting have become a central concern among business leaders, investors, consumers and regulators, who are seeking greater standardization to encourage accountability and the inclusion of non-financial factors in ratings, rules and reports. The increased global focus on climate change, diversity and inclusion and the crisis caused by Covid-19 have only accelerated this momentum. The purpose of the study is to study the essence of the concept of non-financial reporting and the specifics of auditing in this area. Results. Non-financial reporting is a phenomenon that appeared in the world in response to the challenges of the time, in particular, a response to the emergence and development of the concept of corporate social responsibility, which is a concept in accordance with which the organization takes responsibility for its activities, which affects almost all spheres of social life, including companies and other interested parties, the so-called stakeholders. Public non-financial information is an answer to the question that arises from stakeholders about the activities of companies not only from the side of the financial component. Conclusion. The growing interest in non-financial reporting is due to additional requests from interested parties in the conditions of a rapidly changing economy. Improving the regulatory framework in the field of non-financial reporting and its audit, methodical development and dissemination of best practices will increase the pace of its development in Ukraine, and increase the informative and analytical value of reports of Ukrainian companies.

Non-financial risk disclosure practice: Evidence from Saudi Arabian listed companies

This study employs content analysis to analyse non-financial risk disclosure (NFRD) practices within the annual reports of Saudi listed companies over eight years (2010–2017). The data gathered shows that the levels of average NFRD are moderate. The descriptive results show that the average level of NFRD in the sample is 35.33%. This number is much lower than that reported in other studies elsewhere (Elamer et al., 2020; Konishi & Ali, 2007; Ntim et al., 2013). For example, Linsley and Shrives (2006) and Rajab and Handley-Schachler (2009) find that the mean of risk disclosure is 78 and 95 sentences for UK listed firms, respectively. Konishi and Ali (2007) report that Japanese companies offer 47 risk sentences on average. Thus, NFRD in Saudi Arabia appears to be smaller compared to other studies. The low level of NFRD in Saudi Arabia could be mainly clarified by the absence of enforcement. Throughout the study, there were no compulsory requirements for Saudi listed companies to offer information regarding risk or non-financial risk in their annual reports. The rise in the categories of risk-non-financial risk disclosures is more pronounced in the process risk where process risk disclosure grew from 27 (33%) in 2010 to 41 (50%) in 2017. Product, legal, and ethical risk disclosure appeared to be the most frequently disclosed risk, while the Shariah risk is significantly lower. The lack of Shariah risk disclosure can be explained by the fact that only two sectors substantially apply Shariah contracts such as Murabaha, Ijarah, and Istisnaa into their operations. The results of this study have the potential to support those preparing financial reports in firms, as well as regulators to enhance corporate NFRD practices and help investors and other key stakeholders.

The place of sustainable development in ESG risks formation in banking sector

Environmental, social and governance (ESG) issues as well as related opportunities and risks are becoming increasingly relevant for financial institutions. For banks, sustainability is not only an ethical issue, but may soon become an economic and existential one, generating a new kind of risk - ESG risk. Banks must approach ESG risk in a comprehensive way by incorporating it into their risk management systems. This process includes adjusting business and risk strategies, and related risk appetite statements, as well as ensuring full transparency. While ESG risk is not a completely stand-alone type of risk, it affects financial and non-financial risks present in the bank to varying degrees. Consequently, risk management methods and processes must be modified to take into account the complex causal relationships between risk types. This involves the use of risk measurement/assessment techniques in the bank management and change processes, as well as in stress testing. In addition to incorporating ESG into the risk framework, banks need to consider related issues in product development, pricing, and sales decisions. In addition, proper consideration of ESG risks in a wide range of change processes is vital to improving profitability. Regulators, rating agencies and other parties around the world are showing increased interest in this topic, leading to increased reporting requirements and needs. This constant stream of new regulations poses serious compliance challenges for banks. This paper explores these issues. It examines ESG factors and sustainability issues in the banking sector, highlights the opportunities to embed these considerations throughout the risk management process, and provides parallels that can be used to learn from the COVID-19 crisis. This article proposes a holistic approach to ESG risks in risk management.

БАНКОВСКИЕ РИСКИ, ВЗГЛЯД В БУДУЩЕЕ

The article discusses changes in banks in recent years in the field of risk management. The regulations that emerged as a result of the global financial crisis and the fines that were imposed in connection with it caused a wave of changes in risk management functions. They included more detailed and demanding capital, leverage, liquidity and financing requirements, as well as higher risk reporting standards. Attention is paid to non-financial risks as they have become more important as standards of compliance and behavior have become stricter. Emphasis is placed on Stress testing as one of the main tools of supervision, in parallel with an increase in expectations regarding banks’ statements about risk appetite. The final part of the article provides a forecast of how banks’ risk management functions will look in 2033, identifies structural trends that are likely to radically change the bank’s risk management in the future.

Риски профессиональной карьеры: внутренние фокусы и внешние факторы

The uncertainty of a professional career in the future and the impossibility of accurately anticipating it inevitably becomes a source of risks. In theory and practice, there is a high theoretical, methodological and methodological uncertainty of the risk of a professional career as an economic category. In this context, it is relevant to study the definition of the concept of "professional career risk". The research methodology is based on a theoretical analysis of bibliographic sources devoted to modern challenges of achieving professional sustainability of human resources. The statistical data of analytical reviews, statistical reports and primary personnel documents of commercial banks, regulatory and legal documentation regulating activities in the banking sector of the economy served as the informational and empirical basis of the study. The article analyzes empirical data characterizing the priorities and trends of the risks of the professional career of bank employees depending on the development strategy of commercial banks in Novosibirsk. The scientific novelty lies in the substantiation of the author's approach to the development of the modern concept of professional career risks: the author's interpretations of the concepts of financial and non-financial risks of a professional career are given, their content and characteristic features, place and role, priorities and their tendencies of their occurrence and implementation are disclosed. In accordance with the author's approach, it is recommended to monitor the risk profile of a professional career, which creates information support for the development of preventive measures to optimize financial risks. The article is a logical continuation of the results of the author's research published in domestic and foreign publications on the development of the conceptual foundations of career risk management from the standpoint of convergence of career management with risk management.

Association between risk disclosure and (in) existence of corporate reputation of publicly traded companies in Brazil

Purpose - To analyze the possible association between non-financial risk disclosure and the (in) existence of reputation in the most prominent Brazilian publicly traded companies considering the legitimacy theory. Design/methodology/approach - The sample assembles 118 corporations listed on B3 and 345 reference forms from 2006 to 2018. In the analysis of corporate reputation, the presence or absence on ISE and, or ICO2 from B3 was considered. For non-financial risk disclosure, a factor checklist containing 31 risks was taken, categorized under operational, damage, integrity, and strategic risks, from the analysis of Reference Forms. A tree regression, a multiple correspondence analysis, and a T-test of the difference between means were used for data analysis. Findings - There is scientific evidence that the companies with reputations demonstrate non-financial risk disclosure superior to the others. This behavior is confirmed in the subcategories of integrity and strategic risks. Moreover, risk factors in the subcategory of integrity risks were crucial to non-financial risk disclosure. Originality/value - This research paves the way to deepen the early debate surrounding risk disclosure and corporate reputation, especially regarding the quality of non-financial risk disclosure.

Practical Applications of Novel Risks: A Research and Policy Overview

In <b><i>Novel Risks: A Research and Policy Overview</i></b>, from <b><i>The Journal of Portfolio Management</i></b> Special 2021 issue on novel risks, <b>Ahmet Karagozoglu</b> of <b>Hofstra University</b> examines several novel risks of interest to financial market participants. These include environmental, social, and governance (ESG) risk; climate change risk; cybersecurity risk; and geopolitical risk. New and emerging risks are sometimes referred to as “nonfinancial risks.” Karagozoglu contends, however, that their impact needs to be measured financially and points to the parallels between these different risks in terms of measurement and disclosure challenges. Establishment of consistent disclosure policy and reporting requirements is needed, as is improvement in measuring the impact of these novel risks on asset prices, volatility, and global financial stability. These improvements would benefit investors, markets, and regulators because better information leads to improved financial stability.

Post-warranty maintenance strategy selection using shape packages process

It is fair to assume that selection of a post-warranty maintenance strategy is one of the main challenges the capital-good owners face; however, there is relatively little research done in this area. This paper aims to assist asset owners in selecting the equipment maintenance package at the warranty termination time; it proposes the shape package process (SPP), which represents a comprehensive process that facilitates the choice between multiple packages, considering the cost and risk associated with each package.The main novelty of this paper is introducing two new parameters to compare maintenance packages: the risk reduction factor (RRF) to assess the maintenance task effectiveness in reducing non-financial risk and the value-added indicator (VAI) to evaluate the task efficiency in reducing the financial risk. Additionally, the suggested process includes mapping the risk profile associated with each package, enabling a cost-cutting process where the tasks with less value and risk mitigation can be easily identified and eliminated.A case study then demonstrates the process flexibility in comparing different maintenance packages using the analytical hierarchy process (AHP); while presenting RRF and VAI at the task and package levels when implemented in a cooling water system to select the post-warranty maintenance package from an asset owner's perspective.

Operational Cyber Risk in the differing business model of Insurance Companies: the example of Poland

Cybersecurity has become one of the greatest challenges in today’s post pandemic, digital and interconnected world, and also a subject of strategic importance for the insurance industry. There is no doubt that the advance of technology and the increased use of big data and cloud computing have set up an opportunity for insurance business, but they also expanded insurance companies’ vulnerabilities towards cyber risk. As insurers collect a large amount of confidential data, including protected personal sensitive information, they are a natural target for cyber-attacks. On the one hand, the aim of the article is to indicate how the risks associated with digitalisation affect the day-to-day operations in selected business areas of an insurance company, and which methods may be used to manage them, on the other. After a general review of cyber risk based on recent branch reports and survey results, the authors identified its global economic impact with particular regard to financial institutions, and also insurers’ exposure and perception of cyber risk and cybersecurity spending. Moreover, administrative decisions issued by the President of the Personal Data Protection Office in Poland, selected jurisdictions and loss scenarios for insurance companies were examined with a deeper dive into underwriting, selling, administration and claims handling processes. The results of the literature study show that cyber risk is recognized to be one of the most significant non-financial risks (in terms of the source, not result of the risk) for insurers and that many proactive security measures can be implemented. However, due to the high vulnerability to leaks of confidential personal and financial data or unauthorized system access, which may cause not only financial loss, but also business interruptions and reputational damage, in the authors’ opinion, loss prevention and reduction are insufficient. Thus, both insurance and non-insurance methods of external financing cyber risk results were indicated. On this basis, the cyber insurance is considered by the authors to be the best tool providing both prevention and financial compensation in case of cyber incidents, also in insurance companies.

FINANCIAL REPORTING OF THE EFFECTS OF CLIMATE CHANGE ON INSURANCE CONTRACTS AND TFRS 17 STANDARD

İklim değişikliğinin neden olduğu riskler fiziksel etkilerin ötesinde ekonomik, sosyal, siyasal ve halk sağlığı açısından sorunlara sebep olmaktadır. Bu risklerin finansal etkilerinden korunmak için kullanılan önemli araçlardan biri de sigortacılık faaliyetleridir. Sigortacılık sektörünün kendisi için risk ve fırsatları barındıran iklim değişikliğinin etkilerini iyi bir şekilde yönetebilmesi için doğru ve risk temelli bir raporlama sürecine ihtiyacı vardır. Bu çalışmada iklim değişikliğinin sigorta sözleşmeleri üzerindeki finansal etkisi TFRS 17 Sigorta Sözleşmeleri standardı açısından ele alınmıştır. Standardın finansal olmayan risk unsurlarını da ölçüm sürecine dahil etmesi ve benzer nitelikteki sözleşmelerin grup sözleşme olarak raporlanması iklim değişikliğinin finansal etkilerinin raporlanması açısından olumlu düzenlemelerdir.

Institutional Investors, Risk Management and Audit Committees Influence on Non-Financial Risk Disclosure

This study examines the complementary or substitution role of audit committee independence (ACInd), risk management committee (RMC) and institutional investors on non-financial risk disclosure (NFRD). While the existing literature provides inconclusive evidence on the individual influences of various monitoring mechanisms on NFRD, it is necessary to examine whether their combined monitoring roles are present as many monitoring mechanisms coexist within an organisation. This study examined a sample of 864 Bursa Malaysia companies from 2016 to 2018. The Delphi technique is used to finalise NFRD items. This study performed regression and simple slope tests to examine the complementary and substitutive role of ACInd, RMC and institutional investors. The findings show that RMC is substitutive to AcInd towards NFRD. This demonstrates that RMC has the expertise and potential to lessen any information asymmetry, making it the most reliable monitoring mechanism. These findings indicate the significance of establishing a standalone RMC among Malaysian companies to supervise the NFRD reporting. Keywords: Complementary and substitutes framework; institutional investors; non-financial risk disclosure; risk management and audit committees. ABSTRAK Kajian ini mengkaji peranan pelengkap atau pengganti jawatankuasa audit bebas (ACInd), jawatankuasa pengurusan risiko (RMC), dan pelabur institusi ke atas pendedahan risiko bukan kewangan (NFRD). Walaupun kajian lalu telah menunjukkan bukti yang tidak konsisten berkenaan pengaruh pelbagai mekanisme pemantauan secara individu ke atas NFRD, adalah perlu untuk memeriksa kewujudan gabungan mekanisme pemantauan secara bersama disebabkan banyak mekanisma pemantauan berada bersama dalam organisasi. Kajian ini menguji 864 sampel syarikat tersenarai di Bursa Malaysia dari 2016 hingga 2018.Teknik Delphi digunakan untuk memuktamadkan item-item NFRD. Ujian regresi dan kecerunan telah dilakukan bagi memeriksa peranan pelengkap dan pengganti ACInd, RMC dan pelabur institusi. Dapatan kajian menunjukkan RMC adalah pengganti kepada AcInd ke atas NFRD. Ini menunjukkan RMC mempunyai kepakaran dan berpotensi mengurangkan masalah jurang maklumat dan menjadikannya mekanisme pemantauan yang paling dipercayai. Penemuan ini menunjukkan kepentingan penubuhan RMC tersendiri dalam kalangan syarikat Malaysia untuk menyelia pelaporan NFRD. Kata kunci: Kerangka kerja kesan pelengkap dan pengganti; pelabur institusi; pendedahan maklumat risiko bukan kewangan; jawatankuasa pengurusan risiko dan audit.

Personalized information and willingness to pay for non-financial risk prevention: An experiment

When receiving personalized rather than population-based information, agents improve their knowledge about their probability of experiencing adverse events (e.g. health shocks). Being revealed as high or low risk, they may revise their willingness to pay (WTP) for prevention programs. If the WTP changes of the high- and low-risk individuals go in opposite directions, the overall impact on the WTP for prevention depends on whether the relationship between WTP and the initial probability of damage is convex or concave. We address this question in a laboratory experiment. Participants received an endowment and were exposed to a non-financial damage—consisting in electrical shocks—with a certain probability. We elicit subjects’ WTP for self-protection and self-insurance, i.e. actions reducing respectively the probability and the number of shocks, using the Becker-DeGroot-Marschak mechanism. Our results suggest that WTP for self-protection is insensitive to the baseline probability to undergo pain, but reveal that WTP for self-insurance increases at a decreasing rate with this probability. This implies that the diffusion of personalized information should reduce the demand for self-insurance programs.

Effectiveness of Internal Audit- A Tool for Management Control System: An Action Research Approach

Internal audit emerged to have been an indispensable tool of management control system in Large Public Ltd. Companies in particular and Public Ltd Companies in general. Research on internal audit and its effectiveness has mainly so far focused on Public Limited Companies though an effective internal control system is a must for any organization including Private Limited Companies. Present study was administered in DMM Enterprise Private Ltd. Company within the meaning of the Companies Act, 2013 in order to examine the degree of effectiveness of internal audit for Private Limited Companies. The findings reveal that internal audit is a powerful tool to ensure that operational and financial functions carried out in succinct manner by timely detecting errors, financial frauds, exposing the risks involved and guiding the management in day-to-day commercial operations of the concerned organization. The appointment of internal auditor is mandatory for all the Listed Companies and ‘Producer Companies’. Unlisted Public Limited Companies having been subject to either of the criteria of a Paid-up Capital of INR 50 Cr. or more, the Turnover of INR 200 Cr or more and Loans and Borrowings of INR 100 Cr. from banks and financial institutions or having Outstanding Deposits of INR 25 Cr. at any point of time during the preceding financial year. As far as Private Limited Companies are concerned, internal audit has to be in place whenever the Turnover is INR 200 Cr. or more or the amount of Outstanding Loans and Borrowing is INR 100 Cr. or more at any point of time during the immediately preceding financial year. Internal audit for Private Limited Companies not covered within the criteria mentioned above assists efficiently in early detection of financial scam, frauds, errors, risk exposure , organizational performance evaluation and ensuring exercise of a robust management control throughout the length and breadth of the organization and save financial resources, ensures accuracy, authenticity, validity and reliability of financial information which in turn contribute to ensure quality decision making by the management. Moreover, effective internal audit system can save financial resources from being spent on non- or non-timely compliances. This paper aims at examining effectiveness of internal audit through the ’Action Research Approach’. Effective internal audit has emerged to be a tool for exercising management control over large organizations for which it is mandatory and also the companies not covered under the canvas of mandatory internal audit requirements and any other organizations including and medium sized enterprises. Scope of internal audit includes identifying and assessing the financial and non-financial risks and the hurdles in achieving the mission, goals and objectives of an organization. The study has been conducted on the Action Research Model developed by Kurt Lewin in the 1930s. This approach helps the organizations bring about sustainable efficiency in the economic operations of a business in terms of improving productivity, profitability and financial solvency.

ESG Standards and Integrated Project Security Assessment (Expertise)

The active integration of ESG assessment into business processes of various states is drawing attention to the issue of developing an integrated rating system for various types of project activities, depending on the level of non-financial risks in the environmental, social and corporate environment in the Russian Federation. The author raises a question on the risks of the rating procedure for information obtained due to the ESG assessment. Following the studied foreign experience, the types of project safety assessment are determined depending on the different bases of differentiation. Based on the results of the analysis, the author makes a conclusion about the preference for a personal choice of a particular assessment model, depending on the purpose of the assessment. The author also concludes that there are no clearly established regulatory grounds for differentiating ESG assessment methods, and therefore each sovereign entity has the right to develop its own types and methods for assessing project safety, adhering to the general ESG concept aimed at sustainable development of economies around the world.