Financial Risk Management Practices Research Articles

EXAMINING THE FINANCIAL RISK MANAGEMENT OF DONOR FUNDS: CASE OF MINISTRY OF HEALTH IN ZAMBIA

<p>This study examines the financial risk management of donor funds using the Ministry of Health (MOH) in Zambia as a case study. The study employs an exploratory case study methodology on a sample of 224 MOH employees. Zambia, being a developing country, significantly relies on donor funds to support its healthcare sector. Prudent management of donor funds is crucial for the sustained delivery of quality healthcare services. However, there has been concerns regarding the financial risk management practices at the MOH in the efficient utilization and accountability of donor funds. From the literature review, it seems no study has been done regarding the financial risk management of donor funds focusing on the MOH in Zambia. Therefore, this study fills this gap. The study findings seem to show evidence of the misappropriation of donor funds exhibited by misallocation of donor funds to unplanned projects or activities. The misappropriations of donor funds seem to be amplified by a lack of strategic planning, lack of coordination, and the absence of effective monitoring and evaluation systems. Additionally, fraud and corruption posed significant risks to donor funds at MOH. Therefore, to mitigate the risks, the study recommends that robust anti-misappropriation measures, enforcement of due diligence on implementing partners, a thorough review of procurement processes, and regular monitoring and evaluation of donor-funded projects be strengthened at the MOH in Zambia. Whistleblower protection and reporting mechanisms should be promoted to help detect and deter fraudulent activities at this Ministry.</p><p><strong> </strong></p><p><strong>JEL:</strong> H51, I18, O23</p><p> </p><p><strong> Article visualizations:</strong></p><p><img src="/-counters-/soc/0787/a.php" alt="Hit counter" /></p>

Efficiency and financial risk management practices of microfinance institutions

AbstractMicrofinance institutions (MFIs) have evolved in different and complex ways to solve various market frictions, with some of them providing a wide range of financial products and using different lending technologies to reach poor and underserved populations. As a result, some MFIs are more efficient than others, but are efficiency gains aligned with risk management practices? The specific characteristics of the microfinance industry make the answer to this question less obvious than that of commercial banks. This paper tries to shed light on these issues by analysing the efficiency and risk management of MFIs and describing the potential implications of these relationships for the microfinance industry. After considering several measures of financial risk management ratios commonly used in the microfinance literature, our results show that cost efficiency improves asset quality and solvency of MFIs, but also reduces the need for holding idle cash or liquid assets. The results of this paper can help academics, policymakers, and regulators to better understand the impact of cost efficiency on financial risks management practices in the microfinance industry.

Influence of Audit Committee Competence on Financial Performance of Deposit-Taking SACCOs in Nairobi County, Kenya

There is a continued trend of fraud and poor performance in most SACCOs in Kenya. Despite the presence of audit committees in SACCOs, members'/shareholders' savings have been left at risk of fraud and mismanagement. None of the studies reviewed has focused on the manner in which audit committee competence affects financial performance in DT-SACCOs in developing countries such as Kenya. This study aims to establish the influence of the competence of the audit committee on the financial performance of deposit-taking SACCOs in Nairobi County, Kenya. This study was based on the Lending Credibility Theory. This study used a correlational research design. The study targeted all the 47 deposit-taking SACCOs in Nairobi County, Kenya. Two audit committee members, the CEO, Internal Auditor, Finance Officer and two members in each deposit-taking SACCO formed the unit of observation. Therefore, the target population was 329 respondents. The study adopted census sampling techniques. The researcher used questionnaires for data collection. The study piloted the questionnaire on 25 SACCO members from 5 SACCOs in Kiambu County, representing 10% of the 47 deposit-taking SACCOs in Nairobi County. Qualitative data were analyzed using content analysis and presented in prose form. Quantitative data collected were analyzed using SPSS version 26. To determine the direction and how strongly the variables are related, the study computed Pearson correlation. The influence of independent variables (audit committee competence) on the dependent variable (financial performance of DT-SACCOs in Nairobi County, Kenya) was determined by computing multiple regression analysis. The findings were presented in tables and figures. The study concludes that audit committee competence has a positive and significant effect on the financial performance of deposit-taking SACCOs in Nairobi County, Kenya. The study recommends that the management of Deposit-taking SACCOs in Nairobi County, Kenya, should provide training and capacity-building programs for audit committee members to enhance their skills and knowledge. This should focus on areas such as financial literacy, risk management, and governance practices.

Navigating Uncertainty: Assessing the Impact of Financial Risk Management on Organizational Performance: Evidence from Insurance Companies in Pakistan

In an era marked by economic volatility and global uncertainties, the effectiveness of financial risk management strategies is crucial for businesses, particularly in the financial services industry. This research investigates the relationship between financial risk management (FRM) practices and organizational performance, specifically within the insurance sector in Pakistan. Moreover, the study aims to explore the role of financial risk management in enhancing the performance of insurance companies operating in the Pakistani market. It establishes a research model based on Financial Risk Management (Market Risk, Operational Risk, Liquidity Risk, and Legal Risk) and Organizational Performance (ROE). Researchers surveyed 13 insurance companies in Pakistan using non-probability and convenience sampling techniques and analyzed the data using EViews. The results indicate a significant and meaningful link between organizational success and financial risk management. This study seeks to incorporate best practices and focuses on developing a comprehensive understanding of the influence of organizational performance and financial risk management strategies.

Effect of Financial Risk Management Practices on Profitability of Listed Companies in Rwanda: A case of CIMERWA PLC (2020-2022)

Effect of Financial Risk Management Practices on Profitability of Listed Companies in Rwanda: A case of CIMERWA PLC (2020-2022)

Fractional Brownian motion in option pricing and dynamic delta hedging: Experimental simulations

This research examines the impact of fractional Brownian motion (fBm) on option pricing and dynamic delta hedging. Through experimental simulations, we analyze the influence of the Hurst exponent on option price prediction. Our findings highlight the necessity for continuous calibration of the Hurst exponent for a specific market dataset. By estimating option prices using fBm, we evaluate price prediction accuracy and explore fBm’s benefits in option pricing models. We also investigate dynamic delta hedging strategies for call options within the fBm framework, providing an algorithm and code that consider the Hurst exponent. The study’s insights contribute to advancing financial modeling and risk management practices, illuminating the dynamic nature of market phenomena and underscoring calibration’s significance in capturing market dynamics. The findings emphasize the dynamic interplay between the Hurst exponent and option pricing, offering valuable implications for effective risk management strategies.

The Strategic Imperative of Treasury and Financial Risk Management in a Volatile Economic Landscape

Purpose: This study investigates the strategic imperative of treasury and financial risk management in volatile economic landscapes. It focuses on the importance of robust risk management practices in navigating market uncertainties, technological disruptions, and regulatory changes to enhance organizational stability and value creation. Research Design and Methodology: Employing a quantitative descriptive approach, this research analyzes existing literature and empirical data on treasury and financial risk management practices. It involves thematic analysis and synthesis of key themes and trends, with data collected from academic journals, books, and reputable databases. Findings and Discussion: The study reveals that effective risk management practices are crucial for mitigating market, credit, liquidity, and operational risks in volatile economic environments. Advanced technologies like AI and blockchain, alongside regulatory compliance, play pivotal roles in enhancing risk assessment and management capabilities. Also, fostering a risk-aware culture and promoting employee risk management literacy is essential for organizational resilience and agility. Implications: The findings underscore organizations' need to integrate advanced risk management strategies and technologies into their treasury functions. Policymakers and practitioners should enhance regulatory frameworks and foster innovation to ensure robust risk management. Future research should explore the interplay between organizational culture, governance structures, and regulatory environments in shaping effective risk management outcomes.

The impact of financial technology and risk management practices on corporate financial system profitability: evidence from Kuwait

A vital element of the stability of banking institutions is the presence of an effective risk management system, as well as the financial stability of the corporate sector of the economy in terms of the fulfilment of assumed credit obligations. This study investigates the relationship between financial technology (Fintech) adoption, risk management practices and corporate profitability in Kuwait. The object of the study was 62 industrial enterprises registered on the stock market of Kuwait as of 2022. Methods of descriptive statistics, least squares method for estimating regression model parameters, and correlation analysis served as methodological tools of this study. This study aims to overcome the gaps in theoretical justification and empirically prove the existence of a relationship between the implementation of financial technologies and risk management methods. The results showed a positive correlation between the development of financial technologies and return on assets (correlation coefficient 0.6540), which indicates that implementing innovative financial technologies will contribute to improving the efficiency of banking institutions. The strong and positive correlation between the effectiveness of risk management and the profitability of business entities emphasizes the importance of responsible risk management practices for increasing banking institutions’ profitability. Based on the results of building a regression model, it was established that fintech has a significant impact on indicators of the return on equity of economic entities (р<0.050, t = 1.7700). The originality of this study lies in its focus on Kuwait and the Middle East as a whole and in its exploration of the relationship between corporate financial system profitability, risk management strategies and Fintech adoption. The use of innovative technologies (advanced analytics, artificial intelligence and blockchain) increases the effectiveness of risk management, which contributes to rational decision-making and a better understanding of the banking institution’s potential risks and development opportunities. This study contributes significantly to the existing literature by highlighting the relationships between financial technology innovation adoption, risk management and business financial performance in a market environment in the Middle East.

The Effects of Risk Management Practices on Financial Performance: An Empirical Analysis on Islamic Banks

Risk is an inevitable reality for financial institutions, and once it is known, the main activity to be done is an effective risk management.The purpose of this study is to empirically analyze the effects of risk management practices on financial performance in Islamic banks. This study examines the effect of risk management practices on the financial performances of three Islamic banks operating in Türkiye through regression analysis. The data set of the study consists of a panel data containing 180 observations in total. Return on equity and return on assets, which are used as indicators of banks' financial performance, are dependent variables of the model. The financial ratios used to represent risk management are the independent variables of the model. The findings reveal that leverage ratio and asset utilization ratio have statistically significant effects on the performance of Islamic banks. The results of the study support the findings and arguments in the established body of previous literature. The findings obtained within the scope of this study could be used as guidance for the banks in their financial risk management practices and they will shed light on the future studies.

Financial Risk Management Practices on Financial Performance of Microfinance Institutions in Kiambu County, Kenya

Purpose: MFIs are subject to financial risks, just like all other financial institutions. This is intimately tied to their primary businesses of managing credit and accepting deposits. Therefore, risk management is crucial for MFIs in order to maximize their return on investment. The current study sought to establish the effect of financial risk management practices on financial performance of microfinance institutions in Kiambu County, Kenya. The study focused on establishing the effect of liquidity risk management practices, operational risk management practices, credit risk management practices, and market risk management practices on financial performance of microfinance institutions in Kiambu County, Kenya. The theories anchoring the study comprised of Risk Management Theory, Extreme Value Theory, Credit Risk Theory, and Capital Market Theory.
 Methodology: A descriptive survey research design was adopted in the study. The target population comprised of 31registered microfinance institutions operating in Kiambu County. The unit of observation comprised of Risk and Compliance Manager, Finance Manager, Operations Manager, Credit Manager, and Business Development Manager from each of the microfinance institution making a total of 155 respondents. A census approach was adopted in the study where all the registered microfinance institutions were involved in the study. Both primary and secondary data was employed in the study where 5-point Likert scale questionnaires were employed to gather primary data while a secondary data collection sheet was utilized to gather secondary data. Both descriptive and inferential statistics were used to analyze the collected data. The statistics were generated by help of Statistical Package for Social Scientist and MS Excel.
 Findings: The results of the analysis revealed that Liquidity Risk Management Practices, Operational Risk Management Practices, Credit Risk Management Practices, and Market Risk Management Practices positively and significantly affects financial performances of microfinance institutions in Kiambu County, Kenya as shown by beta values of 0.401, 0.309, 0.497 and 0.351 and significant values of 0.000. 0.001, 0.000 and 0.006 respectively.
 Unique contribution to theory, practice and policy: The results implies that when each of the independent variable is increased with one unit, financial performance of the microfinance institutions increases with the respective beta value of the independent variable. The results led to conclusions that liquidity risk management practices, operational risk management practices, credit risk management practices, and market risk management practices bears appositive and significant effect on financial performance of microfinance institutions in Kiambu County. The study provided recommendations to the management of the microfinance institutions to enhance their practices in areas of liquidity risk management, operational risk management, credit risk management, and market risk management to improve financial performance to a positive and significant level.

RESEARCH OF THE EPISTEOLOGY AND DEVELOPMENT OF FINANCIAL RISK MANAGEMENT: ORIGIN, CONCEPTS, PROSPECTIVE DIRECTIONS

Goal – research of financial rhysicology from the standpoint of modern theoretical and practical requirements, identification of existing problems in the theory and practice of financial risk management and determination of directions for its further development in order to increase the effectiveness of practical financial management of enterprises in conditions of increased uncertainty of the environment in which they (enterprises) operate. Method. To achieve the goal, analytical studies were performed and scientific methods were used, in particular: content analysis of modern views and positions of domestic and foreign scientists regarding the definition and classification of entrepreneurial, economic and financial risks; the method of system analysis and portfolio factor analysis for structuring and determining the hierarchy in the risk system, a systematic approach in substantiating the unity of strategic, tactical and operational risk management; assessment of quantitative and qualitative methods of financial risk analysis, as well as methods of behavioral economics. The results. Considering the relevance of the topic, the main attention is paid to the analysis of financial rhysicology with an in-depth study of the complex of theoretical, scientific and practical aspects of this topic. The objective prerequisites for the formation and history of the development of financial rhysicology and its scientific connections with other related fields of scientific knowledge have been studied. The content analysis of the publications of domestic and foreign scientists in the field of financial risk management and those related to it made it possible to identify the main problems and unresolved issues that are currently inhibiting the development of financial management. It has been proven that such obstacles include, in particular: the vague definition of the specifics of financial risks and the lack of research into their systemic synergistic relationships with other risks; a certain disregard of the objective relationship between strategic, tactical and operational financial risk management and the absence of indicators of strategic, tactical and operational financial risks adapted to the conditions and features of a specific industry, enterprise, situation, etc.; insufficient development of financial risk assessment methods for the most risky types of activities or financial transactions; the need to develop and apply the manager's risk appetite in financial risk management; inadequate use of outdated, including foreign, methods and models in the methods of financial analysis and bankruptcy forecasting; excessive, sometimes unjustified, use of complex mathematical methods and models in financial risk management, which reduce the effectiveness of risk management. Scientific novelty. The conducted research has a scientific result: a system of portfolios of modern economic and economic risks that affect financial risks; substantiating the combination of strategic, tactical and operational financial risk management as a complete system – the triad of financial management; pragmatically priming transition from classical to neoclassical rhysicology; justification of changes in the methods of financial analysis and bankruptcy forecasting and the principled rejection of the use of outdated and therefore inadequate methods and models; substantiation of the application of elements of behavioral economics, in particular – the risk appetite of the financial manager, when making management decisions, which in the complex made it possible to form a list of the most relevant areas of further scientific research. Practical significance. The results of the study are aimed at improving the practice of making financial decisions and carrying out financial transactions taking into account the existing economic, economic and financial risks; should ensure the validity and improve the effectiveness of the relevant management actions. Key words: risk, classical and neoclassical rhysicology, content analysis, financial risk, financial management, system, financial analysis, risk appetite.

Exploring financial risk management practices in selected Tshwane schools

With this study we explored financial risk management practices in public schools in selected quintile (1, 2 & 3) township schools in the Tshwane South district in Gauteng. The schools involved were previously disadvantaged schools and learners were from the same area as the schools. We adopted a qualitative research approach and thematic analysis was used to analyse the data collected via one-on-one interviews. Stratified random sampling was used to select 12 principals who formed the sample of the study. The challenges experienced by principals identified from the themes concerned a lack of clarity of principals’ roles regarding finances; balancing roles as accounting officers and ex-officio members; effective use of systems provided to use for school administration, including financial record keeping; accountability of reporting; and poor monitoring and support by the Department of Education. Schools across the country face challenges regarding financial management due to a lack of knowledge of financial risk management practices in schools. Within the South African public schools system the overall responsibility and accountability for school financial management and asset control lies with the school governing body.

Corporate Governance Mechanism and Financial Risk Management of Health Care Firms in Nigeria

The study was carried out to examine the relationship which exists between the corporate governance mechanisms and financial risk management. The study is crucial as it shows the extent to which the corporate governance mechanism ensures effective financial risk management practices. To determine the relation which exists between the corporate governance mechanisms (CGM) and financial risk management, the main proxy variables of the CGMs were used in the study, namely; Board Independence (BI), Board Diligence (BD) and Female Directorship Presence (FDP), while financial risk management was proxy by liquidity risk (LIQR). Three hypotheses were formulated to guide the investigation and OLS model was applied in the data analysis. The study anchored on the Stewardship Theory adopted an Ex Post Facto Approach and data were collected from the annual reports and financial statements of listed health care firms in Nigeria for the period 2016-2020. The empirical analysis of the research shows that there is a significant and positive association between board independence, board diligence, female directorship and financial risk management of listed health care firms in Nigeria at 5% significant level. Thus, the study concludes that corporate governance mechanisms ensure effective risk management practices among the publicly traded healthcare companies in Nigeria. Thus, the study recommended that companies should review the frequency of board meetings. Attention to be paid to the efficiency and not the frequency of board meetings. Also in composition of corporate board, there shall be independent directors and female directorship presence as thus ensures effective financial risk management practices.

Risk management and strategic improvement of corporate sustainability for multinational companies

Risk management which occurs everywhere in the realm of finance allows organizations attempt to prepare for the unexpected by minimizing risks and extra costs before they happen. This is done by implementing a risk management plan and considering the various potential risks or events before they occur. Descriptive statistics using a frequency distribution and percentage distribution were used to analyse the data gotten from five multinational companies in Saudi Arabia. Chi-square (X2) test was also used as the statistical tool to test for the hypothesis. The study shows that risk identification, risk evaluation and analysis, risk policy implementation and risk prevention are more efficient and influential factors to consider in contributing to the financial risk management practices of many multinational organizations. In pursuit of corporate sustainability, multinational companies are thus advised to put more attention on these factors in implementing risk management plans.

Modeling Non-Maturing Demand Deposits: A Proposed Methodology to Determining the Idiosyncratic Confidence Level Used for Separating Stable Deposit Volumes From Volatile Deposit Volumes

This paper aims to develop a methodology for the estimation of the idiosyncratic confidence level inherent within the process of determining the threshold of separation between volatile and stable deposit volumes. The idiosyncratic confidence level must be reflective of the institution’s specific risk preferences and liquidity risk management policies as anchored into the Principle 9 of the European Banking Authority and Basel Committee for Banking Supervision recommendations. We illustrate the proposed methodology by including liquidity constraints from the Basel III regulatory recommendations introduced in 2013. Furthermore, we point to other ancillary applications of such procedures in the financial risk management practice.

Impact of Financial Risk Management Practices on Islamic Banks Performance in Pakistan

In current era, an effective risk management process is the basic requirement to perform better financial performances. Once the risk has been recognized, then organizing the risk is one of the main objectives to be done. The relationship between risk and return is associated with each other. In Islamic finance, reward cannot be obtained without risks i.e., more risks more rewards and vice versa. The key objective of the current study is to investigate the impact of the financial risk management practices (RMPs) on the Islamic banks (IBs) financial performance in Pakistan. To achieve the main objectives, this research measures the existing RMPs of the IBs and associate these RMPs with the IBs financial performance. This is a dynamic study that has researched both primary and secondary data. To proxy the IBs financial performance, return on assets (ROA) stood average for six years (2014-2019). An adapted questionnaire is distributing among the IBs risk managers for measuring the financial risk management practices of IBs. The methodology of this study comprises on the analysis of data using the analysis of multiple regression and correlation analysis. The results are display in tabulated form and mathematical regression equations. The current study identifies that practices of IBs in Pakistan indicates better financial risk management, resultantly these RMPs discloses the optimistic relationship with IBs financial performance. The study on financial performance recommends that IBs should plan and attempt the advanced techniques and process of risk measurement in IBs. To mitigate the financial risk, the current study proposes to trained the IBs managers with modern techniques which will be very useful and valuable for the IBs financial performance. Keywords: Risk Management, Islamic Banks, Financial Risk, Financial Performance DOI: 10.7176/RJFA/12-14-02 Publication date: July 31 st 2021

Virtue and Risk Culture in Finance

This article considers financial risk management practice using a virtue ethics lens, in response to ongoing critiques of risk management from within business ethics. Risk management should be seen as embedded within a complex system of cultures, organizations and regulations that are underpinned by a quantitatively reductive or ‘mechanistic’ economic paradigm, where dominant logics of self-interest, profit maximization and short-termism prevail. Building on recent work applying virtue ethics in finance, an alternative to the values, normative expectations and priorities in financial risk management is presented in the form of a refined ‘taxonomy’ of the virtues that can be applied to individuals and organizations engaged in financial risk management. This article aims to contribute to and extend debate on the ethical aspects of risk management and presents an alternative to more technically based critiques which do not engage with the underlying socially constructed foundations of risk management practice. It thereby provides a basis to critique the mechanistic and narrow approach used in the current regulation of the sector.

Assessing financial risk management in local governments

The purpose of this study is to examine the impact of the financial risks local governments are exposed to within the scope of financial risk management practices. Istanbul Metropolitan Municipality (IMM) was selected for this study because it is the largest local government with the highest budget. In the study, the development of financial risk performance of IMM between the years 2008-2018 was examined in the light of the risks IMM is exposed to. The main results regarding the risks faced by IMM during the period are as follows: Financial data obtained from the financial statements of IMM were used to examine the performance of listed risks& effects they have on the budget of IMM. The results indicate that (i) risk of dependence on shares from the central budget revenue; (ii) IMM was directly dependent on the central budget in terms of revenues, so in this period, the risk of dependency was high in terms of counterparty risk.

Modeling Non-Maturing Demand Deposits: On the Determination of the Threshold of Separation Between Volatile and Stable Deposit Volumes

This paper aims to develop a methodology for the estimation of the idiosyncratic confidence level inherent within the process of determining the threshold of separation between volatile and stable deposit volumes. The idiosyncratic confidence level must be reflective of the institution's specific risk preferences and liquidity risk management policies as anchored into the Principle 9 of the EBA (European Banking Authority) and BCBS (Basel Committee for Banking Supervision) recommendations. We develop the methodology by including the new liquidity constraints from the Basel III regulatory recommendations introduced in 2013 (LCR and NSFR). For the determination of the con fidence level we utilize these liquidity constraints given by their respective critical thresholds. Once the dynamics of the factor process including LCR and NSFR are estimated, the implicit con dfience level can be calculated. We further illustrate the application of the methodology via processing a data time series stemming from a fi ctional European savings bank. Furthermore, we point to other ancillary applications of these procedures in the financial risk management practices.

The relationship between financial risk management and succession planning in family businesses

PurposeThis article examines the relationship between financial risk management and succession planning in family businesses. Motivated by the Theory of Planned Behaviour, we hypothesize that the use of professional risk management practices is associated with an increased likelihood that businesses adopt professionalized approaches to succession planning. We then investigate if succession planning professionalization is, in turn, positively related to the financial performance of family businesses.Design/methodology/approachWe apply binary probit and ordered dependent variable regressions to unique data generated from a survey sample of Australian family businesses. To check the robustness of our results to potential endogeneity concerns we apply difference tests to propensity score matched sub-samples from our original cohort of respondents.FindingsThe results show that, in contrast to verbal or absent succession arrangements, formal written succession plans are both positively associated with the use of financial risk management practices and with superior financial performance in family businesses.Originality/valueOur arguments and findings suggest that active financial risk management provides a platform for planning succession in family businesses, and that this links with improved short-term financial performance. In light of the critical role that succession plays in ensuring long-term business sustainability, our findings provide important and novel insights into the conditions under which family businesses are most likely to use formal professionalized succession planning.