Risk Management Practices Research Articles

Toward a mapping of compliance risk in banks

PurposeCompliance risk management in the banking sector is crucial because of its multifaceted nature and its potential repercussions on reputation and financial stability. This study aims to present a systematic approach to mapping compliance risks, leveraging the risk self-control assessment (RSCA) method. Integrating quantitative and qualitative assessment techniques and drawing on human expertise and industry best practices.Design/methodology/approachThe authors followed a methodology that involves conducting semistructured interviews with banking compliance professionals and analyzing professional frameworks to gather pertinent information. This comprehensive approach allows to obtain a holistic view of the risks involved and to refine the risk analysis process.FindingsA step-by-step guide to map compliance risk within banks is proposed. The authors offer a rigorous process to enhance compliance risk management practices within the banking sector, providing actionable insights to effectively navigate regulatory complexities and safeguard financial stability.Practical implicationsThe insights from this paper will guide compliance officers and risk managers to better assess and monitor compliance risk within their organizations.Originality/valueTo the best of the authors’ knowledge, this may be the first thorough paper that tackles the topic of mapping compliance risk in banks, from identifying areas of risk to corrective measures after drawing up the risk map, using the RSCA approach.

Project risk management in practice: the actuality of project risk management in organizations

PurposeThis paper explores how risks are managed in project practice beyond formalized risk management processes by applying the lens of actuality research to project risk management.Design/methodology/approachThe paper follows a qualitative multimethod research approach utilizing literature review, interviews, observations and document analysis. The paper is based on three case studies and one interview study in project organizations facing green transition challenges.FindingsLittle work exists to reveal how risk management is actually done by project practitioners, and why. Few studies report on contextual variation and consider confounding factors beyond a “one size fits all” formalized explicit risk management process, despite ample evidence that risks are managed outside the formal process. The study documents that informal and/or implicit risk management activities add significantly more value.Originality/valueThe paper contributes a literature review of research into the actuality of project risk management, a sense-making framework of how risks are managed in practice beyond the formal, explicit risk-management process by including informal and/or implicit risk management activities, an empirical study of risk-management practice highlighting that informal and/or implicit risk-management activities dominate in practice, a discussion of why risks are managed outside formalized, explicit process and a research agenda to enable the design of impactful project risk-management practices.

The role of inheritance risk management in family enterprises to achieve family businesses sustainability in the middle east

Transferring wealth and ownership in family businesses is a pivotal juncture that can either strengthen the family legacy or dismantle its foundations. However, this paper examines the effect of inheritance risk management and family business practices on family business sustainability. It also discusses the mediating role of regulatory environment in the Middle East. Nevertheless, quantitative analysis was used to investigate the direct and indirect effects of IRM and FBP on the regulatory environment and family business sustainability as well as the mediating role of the regulatory environment using a quantitative approach through a survey design. However, a total of 116 questionnaires were collected through purposive sampling from the responses. The study sample consisted of managers who were contacted through email and social networking sites. Moreover, Smart PLS 4.1.0.1 was used to test the research hypotheses. The findings indicate that IRM and FBP have significant and positive effects on the regulatory environment in terms of the sustainability of family businesses. The result also confirms the mediating effect of the regulatory environment. The results emphasize the importance of a comprehensive approach to managing family businesses both in addressing internal and external challenges as strategic planning, innovation and governance structures appear as key factors affecting the sustainability of family businesses. This study suggests avenues for future research and provides practical implications for decision-makers, policy makers, practitioners and academics seeking to develop family businesses and the long-term resilience of family businesses in the Middle East.

Semi‐partial Quadratic Subtraction Set Pair Potential (SQSSPP) method for regional drought risk assessment: A case study in Suzhou City, China

AbstractDrought risk assessment plays a crucial role in effective drought management. However, it is often challenging due to the intricate relationships among various indicators and the lack of practical guidance. This study presents a drought risk assessment model developed using the Semi‐partial Quadratic Subtraction Set Pair Potential (SQSSPP) method, which is derived from the theory of set pair analysis. The indicator system comprises 21 indicators divided into four subsystems. The SQSSPP method utilizes uncertainty information in the overall development trend of regional drought risk states by extracting connection numbers from the Subtraction Set Pair Potential (SSPP), improving the reliability of evaluation results. The SQSSPP method is validated through a case study of Suzhou City, China, from 2007 to 2017. Three grades are used to evaluate comprehensive drought risk. The result shows an overall decreasing trend over time, with a level III risk in 2010 and consistently at level II from 2011 to 2017. Indicators in the hazard and resilience subsystems are the primary factors influencing drought risk in the Suzhou City. Specific indicators requiring emphasis for improvement are identified, including arable land rate, agricultural population ratio, reservoir regulation rate, current water supply capacity, and irrigation index. The SQSSPP method not only provides targeted drought risk assessment but also provides valuable guidance for future water resource management. While the study focuses on Suzhou City, the proposed approach is applicable to broader‐scale risk management evaluations and practices.

Analysis of the Effect of Risk Management and Compliance Practices on Financial Performance and Corporate Reputation in the Financial Industry in Indonesia

This study examines the impact of risk management and compliance practices on the financial performance and corporate reputation of financial institutions in Indonesia. Utilizing a quantitative approach, data were collected from 160 financial institutions through a structured questionnaire and analyzed using Structural Equation Modeling-Partial Least Squares (SEM-PLS 3). The results indicate that both risk management and compliance practices significantly enhance financial performance and corporate reputation. Specifically, risk management practices have a stronger positive impact on both outcomes compared to compliance practices. These findings underscore the necessity for financial institutions to integrate comprehensive risk management and compliance strategies into their operations to achieve financial stability and bolster their reputation. The study provides valuable insights for practitioners and policymakers, highlighting the critical role of these practices in fostering long-term sustainability and success in the financial industry.

Risk Management Practices among Micro, Small, and Medium Enterprises (MSMEs): Basis for Risk Assessment Framework

Understanding the risk management practices used by MSMEs is crucial in order to ensure their long-term growth and survival. This study aims to determine the risk management practices among Micro, Small and Medium Enterprises (MSMEs) in the City of San Jose Del Monte, Bulacan which would be the basis for the risk assessment framework. One hundred MSMEs owners’ respondents were considered for this study which utilized quantitative approach and descriptive research design. A survey questionnaire determined how MSMEs deal with different risk they face and what practices they need to implement and lessen the risk that might have an impact on the achievement of their strategic goals. This study employed the percentage, mean, and analysis of variance. Market risks such as equity price, interest rate, foreign exchange, and commodity risks has been perceived by the respondents as the most likely or has a significant likelihood of encountering this challenge. The assessment of risk management practices reflected a positive outlook, with respondents generally agreeing on the effective implementation of key practices like enterprise risk management, objective setting, internal environment, monitoring, event identification, and information communication.

Construction and intergenerational transmission of the perception of volcanic risk in Mexico

Many populations live around active volcanoes with the uncertainty of a possible big eruption, as is the case of the populations near Popocatépetl in Mexico, which began a period of activity in 1994. The risk perception of these populations is complex to manage, due to factors such as territorial rootedness, social identity, cultural factors, as well as diverse positions among generations. A qualitative research was conducted in the municipality of Tetela del Volcán in Mexico, located in a high volcanic risk zone. The main objective of this work was to analyze the social construction of the perception of volcanic risk considering the exchange of knowledge between different generations. An ethnographic and participatory study was carried out from symbolic interactionism, using elements of grounded theory and deductive elements for the analysis of information. The participants were adolescents, adults, and seniors from different social sectors. The results allowed the construction of a theoretical mapping of the processes of intergenerational construction of volcanic risk perception. It was found that different generations coexist, including adults born during the current period of volcanic activity. Also, risk perception is constructed from the integration of three dimensions: 1) culture and environment, 2) socio-cognition and emotions, and 3) responses to volcanic risk. From these findings it is possible to understand the continuities and social transitions of different generations coexisting with the Popocatépetl risk and uncertainty. This work can help decision makers improve public policies, risk management practices, and risk communication strategies and disaster risk reduction.

Measuring risk transmission between international oil and islamic stock markets: A comparative analysis with the gold markets

An asymmetric dynamic conditional correlation-conditional value-at-risk (ADCC-CoVaR) method was used in examining the spillover of risk between gold, oil, and the Islamic stock indices between January 1, 2016, and July 6, 2023. The study evidenced increasing conditional correlations between these indices amidst the COVID-19 crisis. The findings indicate a generally significant transmission of downside and upside risks across all market pairs throughout the cumulative distributions and below (above) the 10th (90th) decile. Overall, the spillover of downside risk is considerably more heightened than that of upside risk, irrespective of the market pair and the direction of conditioning, with the exception of a few pairs, such as GOLD/DJI, DJIF/WTI, WTI/DJIF, WTI/DJIT and GOLD/DJII, where this pattern is not observed. In most cases, the risk spillover among the studied markets is not different based on their spillover direction. Amid the COVID-19 crisis, WTI offers improved diversification and advantages in terms of risk reduction with Islamic stock indices and vice versa. However, as compared to other Islamic indices, oil offers less diversification and risk reduction advantages within the Islamic financial sector, and vice versa. These findings hold significance for effective portfolio rebalancing and risk management practices.

Green Finance and CSR: Effects on Firm Value

This study investigates the impact of sustainability reporting, green financing, corporate social responsibility (CSR), and environmental auditing on firm value and risk management in Indonesian manufacturing companies. Using a quantitative approach, data was collected from 100 manufacturing companies through a structured questionnaire based on a Likert scale. Data were analysed using SEM-PLS 3 to assess the relationship between variables. The findings show that all factors studied - sustainability reporting, green financing, CSR, and environmental auditing - positively and significantly influence firm value and enhance risk management practices. These results underscore the importance of integrating sustainable practices into corporate strategy to enhance firm value and effective risk management. The implications of these findings suggest that firms should prioritise sustainability initiatives as a key component of value creation and risk mitigation strategies in Indonesia's competitive manufacturing sector.

Sustainable Development of Entrepreneurship through Operational Risk Management: The Role of Corporate Social Responsibility

The goal of this paper was to study the role of corporate social responsibility (by the example of responsible HRM) in the sustainable development of entrepreneurship through operational risk management. The correlation analysis method was used to find a close connection between the number of employees and operational risks to international companies from “Global 500” in 2021–2023. The regression analysis method was used to compile the economic and mathematical model of the sustainable development of international entrepreneurship, which demonstrated wide opportunities for operational risk management through responsible HRM. The method of trend analysis allowed determining scenarios of the sustainable development of international entrepreneurship, which demonstrated that in the Decade of Action, the success of operational risk management is largely determined by the activity of the use of responsible HRM practices. The main conclusion is that responsible HRM facilitates the reduction of operational risks to modern companies, but practices of responsible HRM have different impacts on operational risks to companies: some practices (creation of knowledge-intensive jobs and stimulation of the innovative activity of employees through support for research talents) reduce operational risks, while some practices (stimulation of the growth of labor efficiency and attraction of female researchers to the staff) have a contradictory impact, and other practices (development of human capital through corporate training) increase operational risks. The theoretical significance is because the paper discloses the previously unknown consequences of responsible HRM as a special sphere of manifestation of corporate social responsibility for the operational risks of companies. The practical significance is because the compiled scenarios disclose the perspective of the sustainable development of companies through the improvement of the management of their operational risks based on responsible HRM. The managerial significance is that the proposed recommendations from the authors for the practical implementation of the optimistic scenario can be milestones for companies and can be used to improve the practice of operational risk management of companies.

Leveraging advanced technologies in Supply Chain Risk Management (SCRM) to mitigate healthcare disruptions: A comprehensive review

The Healthcare sector is undeniably one of the most critical sectors in any given economy and disruptions in this industry have dire consequences that affect patient care, the efficiency of healthcare systems and by far public health. This publication seeks to analyze and discuss the vital role of supply chain risk management in addressing disruptions, becoming resilient and ensuring that healthcare services function effectively. The pandemic (COVID-19) brought to fore just how critical it is to have a robust and agile system for supply chain risk management in healthcare, the sudden and unprecedented surge in demand for essential medical equipment like personal protective equipment (PPE) left millions of people at risk thereby jeopardizing their safety and health. This crisis echoed the urgent need for efficient and effective supply chain risk management strategies to mitigate such risks and ensure the availability of vital medical supplies. This review paper will be sharing different strategies and actionable tips to develop contingency plans, identify, reduce potential disruptions and recommended practices for risk management in the healthcare supply chain. This will highlight key areas such as inventory management and stockpiling, which focuses on maintaining safety stock levels to buffer against sudden disruptions, using advanced analytics to forecast demand and manage inventory levels. It will also examine risk assessment and identification by pinpointing potential attacks, threats, and vulnerabilities within the healthcare supply chain through thorough risk assessments. Additionally, it will cover supplier base diversification, emphasizing the importance of engaging multiple suppliers to reduce dependency on a single source and enhance supply chain resilience by balancing global and local suppliers to mitigate geographic disruption risks. Furthermore, it will explore the integration of technology, leveraging innovative solutions like blockchain for enhanced transparency, security, and traceability of supply chain transactions.

Real-time financial monitoring systems: Enhancing risk management through continuous oversight

The rapid evolution of financial technology has introduced complex risks that challenge traditional risk management frameworks, necessitating innovative solutions. This review paper aims to examine and synthesize existing research on real-time financial monitoring systems that use advanced AI and ML technologies to enhance risk management through continuous oversight. The focus includes traditional financial institutions and fintech companies across various regions to address disparities in risk management capabilities. The reviewed studies span five years, from 2018 to 2023, incorporating transactional records, compliance reports, and stakeholder surveys, providing a comprehensive informational and statistical basis. Using a mixed-methods approach that includes qualitative interviews and quantitative data analysis, the literature confirms that real-time monitoring systems significantly improve risk detection accuracy and operational efficiency. Specifically, the studies show a reduction in fraud incidents by 35% and an improvement in credit risk assessment accuracy by 25%. These findings indicate enhanced predictive capabilities and faster response times to emerging threats. The conclusions drawn are relevant for financial institutions, regulators, and policymakers aiming to improve risk management practices and compliance standards. The potential for further application includes broader adoption of real-time systems across the financial sector, ensuring enhanced stability and security in the face of evolving digital threats.

Predicting stock market crashes with machine learning: A review and methodological proposal

This review paper examines the utilisation of machine learning techniques for predicting stock market crashes. It surveys existing methodologies, identifies common trends, and analyses strengths and weaknesses. A novel methodological framework is proposed, integrating ensemble learning, alternative data sources, and model interpretability to address limitations in current approaches. The proposed framework aims to enhance predictive accuracy, transparency, and actionable insights in financial forecasting. Future research directions include empirical validation, interdisciplinary collaboration, and the integration of emerging technologies. Continued research in leveraging machine learning for financial forecasting is vital for advancing risk management practices and fostering resilient financial systems.

Evaluating the Efficacy of Risk Management Practices and Their Necessity for Enhancing the Profitability of Financial Institutions in Sri Lanka

Evaluating the Efficacy of Risk Management Practices and Their Necessity for Enhancing the Profitability of Financial Institutions in Sri Lanka

The Risk Assessment of Banks and Financial Institutions

This thesis investigates the profound impacts of the COVID-19 pandemic on the banking sector, focusing on how the crisis has reshaped risk management and operational strategies. It begins by contextualizing the pandemic's effects within the broader historical challenges faced by the banking industry, drawing parallels with past financial crises to outline the uniqueness of the current situation. Through a detailed analysis of operational, credit, and market risks, this study reveals how banks have responded to the increased volatility and the shift in consumer behaviors towards digital banking solutions. The research adopts a mixed-method approach, combining quantitative data from financial reports with qualitative insights from industry experts to provide a comprehensive overview of the pandemic's impact. Key findings suggest that the crisis has catalyzed significant changes in risk management practices, with banks rapidly adopting technological innovations to enhance resilience and operational efficiency. The conclusion posits that the ongoing challenges require banks to evolve, advocating for a proactive approach to risk management and a strategic embrace of digital transformation. This thesis contributes to the academic literature by providing empirical evidence of the pandemic's impacts and offers practical recommendations for banks and policymakers to mitigate future crises effectively.

The Impact of Internal Audit Effectiveness, Risk Management Practices, and Organizational Culture on Financial Performance

The Impact of Internal Audit Effectiveness, Risk Management Practices, and Organizational Culture on Financial Performance

Design phase collaborative risk management factors: a case study of a green rating system in South Africa

PurposeWe explore the design risk factors and associated managerial practices driving collaborative risk management for design efficacy in green building projects. By illuminating project design risk as an important project risk category in its own right, the study contributes to our understanding of optimising design efficacies for collaborative project risk management.Design/methodology/approachThe study comprises exploratory interviews conducted with 27 industry project practitioners involved in the design and delivery/implementation of Green Star-certified building projects in South Africa.FindingsThe findings discursively highlight seven sources of design risk. We also identify seven specific collaborative risk management practices for design efficacy emerging from a consideration of how risk environments vary in the Green Star-certified projects, each with its own project design risk implications.Originality/valueThe study advances our understanding of how collaborations emerging from particular relational yet context-specific practices can be optimised to strengthen project risk management.

Risk Management Practices and the Performance of Indonesian and Malaysian Islamic Banks: Does Digitalization Mediate This Nexus?

ABSTRACTDespite being exceptionally regulated financial institutions, risk management practices (RMPs) of Islamic banking (IBs) have always remained under the limelight due to their impact on financial performance (FP) and the influence of digitalization (DT). This study aims to investigate the impact of RMPs on FP through the mediating effect of DT. To analyze the linkage between these constructs, we created an index for RMPs, five unique proxies (mobile [MB_DEA], big data [BD_DEA], Internet of Things [IoT], cloud computing [CC_DEA], and social media [SM_DEA]) of DT, and Tobin's Q as a proxy of FP and operationalized the theory of contingency. The data between 2009 and 2020 was collected from Indonesian and Malaysian IBs and was analyzed using the two‐step generalized method of moments (GMMs) technique. The empirical findings represent that RMPs and DT have a significant positive effect on FP. Simultaneously, RMPs have a significant positive effect on two proxies of DT (MB_DEA and SM_DEA), and an insignificant positive effect on the remaining three proxies of DT (BD_DEA, IoT_DEA, and CC_DEA). Simultaneously, DT as a mediator plays a significant role between RMPs and FP. This study contributes to systematizing the RMPs of IBs by integrating digitalization which eventually will increase the financial portfolios of IBs.

Optimizing risk management in oil and gas trading: A comprehensive analysis

The oil and gas trading sector is inherently volatile, influenced by geopolitical events, market dynamics, and regulatory changes. Effective risk management is crucial for mitigating these uncertainties and ensuring operational stability and profitability. This paper presents a comprehensive analysis of optimizing risk management in oil and gas trading, highlighting strategies, tools, and best practices to manage and mitigate risks. Risk management in oil and gas trading encompasses a broad spectrum of activities, including market risk, credit risk, operational risk, and compliance risk. To optimize risk management, firms must employ a multifaceted approach that integrates advanced analytics, robust risk assessment frameworks, and strategic decision-making processes. Key strategies include the use of financial instruments such as futures, options, and swaps to hedge against price volatility. These instruments enable traders to lock in prices and margins, thereby reducing exposure to market fluctuations. Advanced analytics and data-driven decision-making are essential components of effective risk management. By leveraging big data, machine learning, and artificial intelligence, traders can gain deeper insights into market trends, forecast price movements, and identify potential risks. Predictive analytics allows for proactive risk management, enabling firms to anticipate and respond to market changes swiftly. A comprehensive risk assessment framework is also critical. This involves regular monitoring and evaluation of risk exposure, stress testing, and scenario analysis. Such practices help identify vulnerabilities and ensure that risk mitigation measures are in place. Additionally, fostering a risk-aware culture within the organization is vital. This includes training and educating employees on risk management practices and encouraging transparent communication and reporting of risks. Compliance risk, driven by regulatory changes, is another significant aspect of risk management in oil and gas trading. Staying abreast of regulatory developments and ensuring compliance with international and local regulations is essential to avoid legal penalties and reputational damage. Implementing robust compliance programs and leveraging technology to monitor regulatory changes can help firms stay compliant. In conclusion, optimizing risk management in oil and gas trading requires a holistic approach that combines financial hedging, advanced analytics, comprehensive risk assessment, and compliance management. By adopting these strategies, firms can effectively mitigate risks, enhance decision-making, and achieve sustainable growth in a highly volatile industry. Keywords: Optimizing, Risk Management, Oil and Gas, Trading, Analysis.

Excess goodwill and enterprise litigation risk

Corporate mergers and acquisitions (M&A) are now a common strategic choice for enterprises. As such, goodwill, which is a core asset of M&A activities, is pivotal for financial valuation and accounting. However, the phenomenon of ‘excess goodwill’, resulting from overvaluation due to management overconfidence and performance promises, poses significant risks, including potential financial statement distortions and increased litigation. This study investigates the intrinsic link between excess goodwill and corporate litigation risk by utilising theoretical analyses and empirical tests. By analysing data from A-share listed companies in Shanghai and Shenzhen from 2007 to 2022, we employed the regression residual method to measure excess goodwill and determine its impact on litigation risk through mediating factors such as financing constraints, risk-taking and agency costs. The findings indicate that excess goodwill significantly increases litigation risk, with a more pronounced effect on manufacturing firms and those with low internal control quality. This research provides valuable insights into optimising goodwill accounting treatment and enhancing enterprise risk management practices. The study's implications suggest that stricter internal controls and cautious goodwill valuation practices are essential to mitigate risks, ultimately contributing to the stability of the capital market and the protection of investor interests.