Role In Risk Management Research Articles

Franchise business sustainability model: Role of conflict risk management in Indonesian franchise businesses

Franchising is one of the most trustworthy strategic alliance formations to start or expand businesses. Like many other business formations, franchise businesses need sustainable and long-term running; these objectives can be reached by a proper relationship between partners – the franchisor and the franchisee – in the alliances. Both partners’ perspectives are valuable inputs to provide insight into understanding the sustainability of Indonesian franchise businesses. Furthermore, in any type of strategic alliances conflict is a risk that needs to be managed properly. This study aims to examine the relationships of determinants that influence franchise business sustainability. The determinants are risk management, trust, satisfaction, and sustainability. The study applies confirmatory factor analysis using structural equation modeling (SEM) AMOS software. Respondents in this study are franchisors and franchisees in the Indonesian retail and food and beverages (F&B) sectors, the study accommodates 204 respondents. Based on the analysis the study reveals that there is a positive relationship between risk management and satisfaction. Risk management also has a positive relationship with survivability; trust and satisfaction also have a positive relationship. Meanwhile, there is no relationship between satisfaction and survivability and the last relationship is between trust and survivability that has no positive relationship between the determinants. This study provides clearer insight to understand the relationships between determinants that influence franchise business survivability in Indonesia, especially based on both parties’ perspectives.

Spatial and temporal evolution of drought characteristics across the Yellow River basin

Drought disasters restrict economic and social development. Understanding the evolution of the spatiotemporal characteristics of drought plays a vital role in basin risk response and management. Complex empirical orthogonal function analysis is widely used in meteorological research and is an important tool for studying the spatial-temporal distribution structure of arid fields. This research aims to take the Yellow River Basin (YRB) as an example, separate the temporal and spatial distribution structure of drought based on the CEOF method, and explore the abrupt changes, trends, and periodic characteristics of different temporal and spatial distribution patterns. In addition, the cross-wavelet analysis reveals the lagging correlation relationship between the distribution pattern of the arid field in the basin and the Southern Oscillation factor. Results indicated that: (1) there are three typical spatial and temporal distribution patterns (full basin type, southeast-northwest reversed type and east-west reversed type) of the interannual scale drought in the YRB; (2) interannual drought evolution have obvious spatial propagation characteristics. (3) There are correlations between the three types and the Southern Oscillation on the temporal-frequency scale, and there is a time lag of 1-2a with the Southern Oscillation factor.

Marketing contract choices in agriculture: The role of price expectation and price risk management

AbstractWe identify factors involved in the decision of farmers to use marketing contracts (pool, storage and forward contracts), and we explicitly account for the hedging and price‐enhancement components of this decision. Using panel corner solution models (Tobit and double‐hurdle) to represent farmers’ contracting decision using a sample of French cereal producers, we find that both the hedging and the price‐enhancement motives are important factors driving marketing choices. When risk aversion or exposure to price risk rises, the price‐enhancement motive becomes less influential. Farmers appear to be more reluctant to base their marketing decisions on their price expectations in that case.

The association between risk perception and knowledge with the behavior of using respiratory protection devices in the four National Oil Products Distribution Company

Introduction: Having a clear understanding of the relationship between risk perception, knowledge, and protective behaviors could play a significant role in occupational risk management. This study aimed to survey the relationship between risk perception and knowledge on the behavior of using respiratory protection equipment in the four National Oil Products Distribution Company. Materials and Methods: In this descriptive cross-sectional study conducted in 2018, 52 workers from the loading and quality control departments of 4 national companies distributing petroleum products in Sabzevar, Bojnourd, Torbat Heydariyeh, and Shahroud participated. Data were collected through a researcher-made questionnaire whose validity and reliability were assessed (CVI: 0.9 and CVR: 0.92 and Cronbach's alpha coefficient was determined to be 0.73), and data were analyzed using SPSS19 software, and descriptive statistics and linear regression were analyzed. Results: More than half of the participants, who were exposed to the chemicals, use RPDs (Respiratory Protective Devices) all the time and when they are exposed to chemicals. While 75% of them reported using RPDs (Respiratory Protective Devices), reduces the quality of their work. In this study, there was not any significant relationship between RPDs behavior with knowledge and risk perception (P > 0.05). However, the association between work experience and RPDs was negatively significant (p= 0.009). Conclusion: The results of this study suggested that only education and knowledge could not promote individual risk perception, improving protective behavior, therefore other barriers such as uncomfortably of RPDs, or their interference with the worker should be considered. To achieve this goal, the safety and health officials of the companies must pay attention to its quality in addition to the correct choice of these devices.

Summaries of Papers in This Issue

Summaries of Papers in This Issue

The Role of Islamic Corporate Governance and Risk Toward Islamic Banking Performance: Evidence from Indonesia

Research aims: This study aims to analyze the role of Islamic corporate governance mechanisms on the performance of Islamic banks. Besides, it also analyzes the effect of risk profiles, especially those that are directly related to bank financing, on the performance of Islamic Banks.Design/Methodology/Approach: Sharia banks that become the objects are Sharia Commercial Banks (SCB) and Sharia Business Units of Conventional Banks (SBU). This study uses data from 20 sharia banks (11 SCB and 9 SBU). The analytical tool used in this study is panel data regression.Research findings: The results show that the meeting frequency of the Board of Commissioners, Sharia Supervisory Board (SSB), Financing to Deposits Ratio (FDR), and bank size have a significant positive effect on the performance of Islamic banks. Non-Performing Financing (NPF) has a significant negative effect on the performance of Islamic banks.Theoretical contribution/Originality: This study utilized Stakeholders theory, Maqoshid Sharia concept, and corporate governance to investigate the role of Islamic corporate governance mechanisms and risk management on sharia Banks performance.Practitioner/Policy implication: The implication of this study is that SSB activities had a direct and robust influence on Islamic Banks, which have relatively larger assets. Hence, the task of the Sharia Supervisory Board should not be limited to only monitoring the conformity of transactions with sharia but also providing input so that banks can increase their profits in line with sharia.Research limitation/Implication: The limitation in this study is the number of corporate governance variables that was limited.

Disaster Risk Management: The Exercise of Power, Legitimacy and Urgency in Stakeholder Role in Ghana

Aim: Disasters continue to wreck both developed and developing countries, causing high mortality and suffering and damage to local economies and also impede development. Ghana is exposed to natural hazards, and the country’s susceptibility to these disasters has increased in both frequency and complexity over the years. This requires an understanding of disaster planning and resource allocation, legitimised in stakeholders who exercise power and urgency to manage and mitigate external uncertainties and internal complexities. The study aimed to examine the exercise of power, legitimacy, and urgency of stakeholders in disaster risk management in the Accra Metropolitan Area.
 Study Design: Qualitative case study design involving respondents purposively selected from Accra Metropolitan Area and local communities was employed. We used in-depth interviews and desk reviews of policy documents to assess stakeholder role in disaster risk management. We analysed the data using the Interpretative Phenomenological Analysis technique based on three principles of the stakeholder theory; power, legitimacy, and urgency, to advance our discussions on stakeholder role in disaster risk management.
 Results: The findings show that central government exercises high effective power, which serves as a strong basis for policy decisions but low precision and low urgency in responding to disaster risk management. At the local government level, the exercise of power and urgency to act appear ineffective despite a strong policy framework to guide disaster management. In addition, the exercise of power and legitimacy role appears low in the local communities. Conversely, urgency in addressing disaster risk management appears to be high among community members.
 Conclusion: This study contributes to the existing literature by suggesting structural and administrative reforms to stakeholder role in the management of disasters; central government remains a dominant stakeholder; local government agencies restructured to have a definitive role and the communities maintain their demanding role to hold local government agencies accountable. These reforms will establish a sharp, clear roadmap for the future and set into motion scenario planning for unanticipated disasters.

Reprint of: A review on Trichinella infection in South America

Trichinella spp. causes human trichinellosis by means of the consumption of raw or inadequately treated meat from domestic or game animals. In the Americas, as well as in other continents, Trichinella infection is a health issue for humans and has a negative impact on the pork meat market, generated by people’s fear of becoming infected with the parasite. The distribution of human cases and the sources of this disease in humans and animals were analysed in this report, which summarizes the information available regarding Trichinella infection in animals and humans in South America. Within South America, human infection with Trichinella was documented in Argentina and Chile during the period 2005–2019. Trichinellosis is endemic in these countries for, with human cases and foci in domestic and wild animals. In Argentina, human cases occur throughout the country, with foci found in pigs and wild animals. In Argentina, during the period 2012–2018, the number of suspected human cases reached 6,662. T. spiralis was identified in one South American sea lion (Otaria flavescens) from Patagonia, Argentina, for the first time in the region in 2018. In Chile, 258 human cases of trichinellosis were confirmed during the period 2005–2015; out of those 258 cases, most samples which tested positive for Trichinella spp. (29.5 %) were detected in the Metropolitan district (Santiago de Chile and outskirts), and 17.4 % in The Lake district. Regarding age brackets, people between 30–49 years of age showed the most cases (40.1 %). In Brazil, the infection is absent in domestic species but it has been found in wild boars (Sus scrofa) but limited to one or more region of the country. Within the animal species destined for food in South America, those that showed higher parasitical loads were pigs and wild boars, while armadillos (Chaetophractus villosus) and peccaries (Tayassu tajacu) showed very low Trichinella spp. larvae loads (0.04−0.1 larvae/g). Antibodies against Trichinella spp. have been detected in pigs from Ecuador and Bolivia. In Bolivia, antibodies were also found in humans. Peru, Colombia and Uruguay have no documented presence of Trichinella spp. in animals and humans. There is insufficient information regarding the presence of Trichinella spp. in domestic and wild animals, as well as in humans, since only a very limited number of surveys have been carried out. No papers with information on Trichinella spp. circulating in animals or humans have been published regarding the situation in Guyana, Surinam, French Guiana, Venezuela and Paraguay. Considering the growth of the guinea pig meat market in the Andean region, and the high prevalence of the disease reported in free range pigs and wild boars, as well as other game animal species, it is important to focus on the role of biosecurity and risk management, while improving meat market regulations, and detection of infection prior to consumption, in order to reduce the risk of transmission of this zoonotic disease to humans.

Corporate Resilience During Crisis: The Role of Sustainability, Risk Management, and COVID-washing

Resilience is the ability of an organization to anticipate, prepare for and respond to sudden disruptions. Using the COVID-19 pandemic as a research context, we study the relationships between corporate sustainability and resilience in times of crisis. Indeed, it is debatable whether the so-called environmental, social and governance (ESG) initiatives do or do not immunize stocks against crises such as the COVID-19 pandemic. Moreover, despite the importance of risk management for crisis management efforts and the potential for “COVID-washing,” there is no evidence that either lead to greater resilience. In our paper, we analyse global firms which disclose about COVID. Results from multivariate regression analyses show that top ESG performers fare better during the crisis but worse during the recovery period. We also find evidence that firms with more advanced risk management approaches handle the crisis better. Lastly, COVID-washing, though beneficial in the short-term, does not pay off in the long-term. In this respect, we address important knowledge gaps for managers, investors, and other non-financial stakeholders by offering robust empirical evidence on predictors of corporate resilience and the effects of corporate sustainability, risk management, and COVID-washing on financial performance.

Development and applications of debris mobility models in Hong Kong

Landslides are major natural hazards that can pose significant risks to human lives and properties in mountainous areas. Mobility assessments of landslide debris are integral to the management of landslide risks. Over the past two decades, the Geotechnical Engineering Office (GEO) in Hong Kong has expended considerable effort on the development of debris mobility models, and a suite of advanced numerical tools has been developed using different numerical techniques, including particle-in-cell, smoothed particle hydrodynamics and arbitrary Lagrangian–Eulerian methods. The accuracy of the tools was corroborated against historical landslides in Hong Kong and typical values of model parameters were established for use in routine practice. These numerical tools offer geotechnical practitioners a pragmatic and efficient approach to assess the dynamics of landslide debris in landslide hazard investigations and quantitative risk assessments. Some of the numerical tools recently developed by the GEO can also be used to assess the dynamic interaction between landslide debris and structural countermeasures, thereby allowing design optimisation. This paper presents a holistic review of the technical development and engineering applications of these numerical tools with a focus on their roles in landslide risk management in Hong Kong. It also documents the experience of Hong Kong in steering and promoting the use of numerical modelling of large ground mass deformations for the purposes of slope safety management.

Understanding the Cognitive Components of Coastal Risk Assessment

Nowadays, erosion and flooding risks represent a serious threat to coastal areas and this trend will be worsened due to climate change. The increasing concentration of population in coastal areas has a negative impact on the coastal ecosystem due to change in land use and the exploitation of natural resources, which has also increased exposure to coastal hazards. Risk assessment is hence a primary topic in coastal areas and are often affected by mismanagement and competition of interest between stakeholders. This paper presents an integrated model for coastal risk assessment as well as its application on a test site in the Puglia Region (Southern Italy). An innovative approach has been developed combining a traditional index-based model, exploiting a Drivers-Pressures-State-Impact-Response framework (DPSIR), with stakeholder’s and policy makers’ engagement by using the Future Workshop method and complementary individual working sessions structured through the use of Fuzzy-Cognitive Maps. The study shows that stakeholders’ and policy makers’ risk perception play a key role in coastal risk management and that the integration of physical risk with social perception is relevant to develop more effective management following the basics of Integrated Coastal Zone Management.

A reinterpretation of pyroclastic density current deposits at Copahue volcano, Andean Southern Volcanic Zone, Argentina-Chile

Pyroclastic density currents (PDCs) are one of the most dangerous volcanic phenomena. The correct interpretation and mapping of PDC deposits in the volcano record is important to establish the eruptive style and play a fundamental role in hazard assessment and risk management. The Copahue volcano is an active intermediate volcano of the Southern Volcanic Zone of the Andes (Argentina-Chile) that presents fragmentary evidence of explosive activity during its evolution, with unusual minor PDC deposits. The recorded historic eruptions were mainly phreatomagmatic due to the presence of a crater lake. In this study, four key deposits previously interpreted as PDC products corresponding to different stages of the Copahue volcano evolution (Pleistocene, Holocene, and Historic times) are analyzed and this origin is discussed: (i) A Pleistocene reddish succession located in the northeast flank of the volcano formed by stretched bombs in a coherent lava is interpreted as clastogenic lavas; (ii) a series of proximal bedded volcaniclastics deposits of Pleistocene age are interpreted as redeposition of hyaloclastic fragments from syn-eruptive subglacial meltwater flows associated with subglacial eruptions; (iii) a distal Holocene deposit located ~12 km east of the active crater consist mainly in fine-sized clasts forming aggregates is reinterpreted as a sedimentary (lacustrine) deposit with volcaniclastic input; and, (iv) a historic whitish-grey clastic deposit located on the eastern flank is considered a product of a mixed avalanche generated during the 1992–1995 activity. Consequently, the PDC occurrence during the Copahue volcano evolution is less than previously thought. Large PDCs are unlikely in the future and their influence area would be reduced near the active crater as observed in recent eruptions. Flows triggered by the melting of snow/ice during volcanic activity and sudden drainage of the crater lake appear to be a more likely potential hazard that should be considered during risk assessment.

Using Conditional Copula to Estimate Value at Risk

Value at Risk (VaR) plays a central role in risk management. There are several approaches for the estimation of VaR, such as historical simulation, the variance-covariance (also known as analytical), and the Monte Carlo approaches. Whereas the first approach does not assume any distribution, the last two approaches demand the joint distribution to be known, which in the analytical approach is frequently the normal distribution. The copula theory is a fundamental tool in modeling multivariate distributions. It allows the definition of the joint distribution through the marginal distributions and the dependence between the variables. Recently the copula theory has been extended to the conditional case, allowing the use of copulae to model dynamical structures. Time variation in the first and second conditional moments is widely discussed in the literature, so allowing the time variation in the conditional dependence seems to be natural. This work presents some concepts and properties of copula functions and an application of the copula theory in the estimation of VaR of a portfolio composed by Nasdaq and S&P500 stock indices.

Does CSR Reduce Idiosyncratic Risk? Roles of Operational Efficiency and AI Innovation

In the context of Industry 4.0, corporate social responsibility (CSR) plays an increasingly important role in firm risk management. To mitigate risk and improve operational productivity, artificial intelligence (AI), a key disruptive technology, has been increasingly employed in many industries. In this study, we examine the relationship between CSR and idiosyncratic risk (IR) as moderated by AI innovation and operational efficiency based on data from 1614 firms in China during the period from 2010 to 2017. The empirical results show that CSR can negatively affect IR, while beyond a certain level, it acts in the opposite direction, exhibiting a U‐shaped relationship. In particular, operational efficiency shifts the turning point of the U‐shaped curve to the right, implying that firms with high operational efficiency can obtain a higher optimal benefit by improving their CSR. Furthermore, AI innovation flattens the U‐shaped curve, thereby weakening CSR's positive impact on IR. This result indicates that AI innovation is not always beneficial. As AI innovation can have some substitution effect on CSR, enterprises should focus on either CSR or AI innovation as their main differentiation strategy to maximize the utilization of resources. We further instrument CSR using the social expenditure ratio of the province where the firm is headquartered to address a potential endogeneity concern. Finally, we provide several prominent managerial implications for enterprises, governments, and investors.

BEST PRACTICE OF ENTERPRISE RISK MANAGEMENT: THE IMPACT ON RURALS’ BANK PERFORMANCE

This research aims to examine the role of enterprise risk management (ERM) on rural banks' performance. ERM is measured by the structure, governance, and process in the risk management process. The bank performance as the dependent variable use measurement both financial and non-financial. The study sample is the rural banks in Riau Island provinces, consisting of 63 questionnaires as the data for further analysis. The result showed that ERM enhances the rural banks' performance, both financial and non-financial. It showed that the practice of ERM does well when the rural bank is well-established.

Improving stock market volatility forecasts with complete subset linear and quantile HAR models

Volatility forecasting plays an integral role in risk management, investments and security valuation for all assets with uncertain future payoffs. We enrich the literature by presenting computationally intensive variations of the heterogeneous autoregressive (HAR) volatility model: the complete subset linear/quantile regression HAR models, HAR-CSLR and HAR-CSQR. Predictions of 1- to 22-day-ahead volatility of four major market indices (NIKKEI 225, S&P 500, SSEC and STOXX 50) show that both models tend to outperform several benchmark HAR models. Forecasting accuracy improvements tend to stabilize for longer forecasting horizons: e.g., five-day-ahead improvements range from 6.57% (SSEC) to 35.62% (NIKKEI 225) and from 3.99% (STOXX) to 9.54% for mean square error (MSE) and QLIKE loss functions. In terms of MSE, the HAR-CSQR model outperforms several standard benchmark HAR models across all market indices and forecast horizons.

Change-point detection for expected shortfall in time series

Expected shortfall (ES) is a popular risk measure and plays an important role in risk and portfolio management. Recently, change-point detection of risk measures has been attracting much attention in finance. Based on the self-normalized CUSUM statistic in Fan, Glynn and Pelger (2018) and the Wild Binary Segmentation (WBS) algorithm in Fryzlewicz (2014), this paper proposes a variant WBS procedure to detect and estimate change points of ES in time series. The strengthened Schwarz information criterion is also introduced to determine the number of change points. Monte Carlo simulation studies are conducted to assess the finite-sample performance of our variant WBS procedure about ES in time series. An empirical application is given to illustrate the usefulness of our procedure.

Almond oil: A comprehensive review of chemical composition, extraction methods, preservation conditions, potential health benefits, and safety.

Almond oil, a rich source of macronutrients and micronutrients, is extracted for food flavorings and the cosmetics industry. In recent years, the need for high-quality and high-quantity production of almond oil for human consumption has been increased. The present review examines the chemical composition of almond oil, storage conditions, and clinical evidence supporting the health benefits of almond oil. From the reviewed studies, it appears that almond oil contains a significant proportion of poly and monounsaturated fatty acids, with oleic acid as the main compound, and an important amount of tocopherol and phytosterol content. Some variations in almond oil composition can be found depending on the kernel's origin and the extraction system used. Some new technologies such as ultrasonic-assisted extraction, supercritical fluid extraction, subcritical fluid extraction, and salt-assisted aqueous extraction have emerged as the most promising extraction techniques that allow eco-friendly and effective recovery of almond oil. This safe oil was reported by several clinical studies to have potential roles in cardiovascular risk management, glucose homeostasis, oxidative stress reduction, neuroprotection, and many dermatologic and cosmetic applications. However, the anticarcinogenic and fertility benefits of almond oil have yet to be experimentally verified.

Forecasting value-at-risk and expected shortfall in large portfolios: A general dynamic factor model approach

Beyond their importance from the regulatory policy point of view, Value-at-Risk (VaR) and Expected Shortfall (ES) play an important role in risk management, portfolio allocation, capital level requirements, trading systems, and hedging strategies. However, due to the curse of dimensionality, their accurate estimation and forecast in large portfolios is quite a challenge. To tackle this problem, two procedures are proposed. The first one is based on a filtered historical simulation method in which high-dimensional conditional covariance matrices are estimated via a general dynamic factor model with infinite-dimensional factor space and conditionally heteroscedastic factors; the other one is based on a residual-based bootstrap scheme. The two procedures are applied to a panel with concentration ratio close to one. Backtesting and scoring results indicate that both VaR and ES are accurately estimated under both methods, which both outperform the existing alternatives.

Strategic Risk and Lobbying: Investigating Lobbying Breadth as Risk Management

Despite many studies investigating how lobbying expenditures enhance performance outcomes, limited attention has been given to understanding the underlying mechanisms driving firm lobbying behaviors—and, particularly, where firms target their lobbying expenditures. We argue lobbying breadth serves as a risk management strategy to both hedge against possible government intrusion and minimize disapproval of firm actions from government officials. As such, we posit firms’ strategic risk will positively relate to breadth of lobbying firms’ target. Further, if lobbying breadth serves as risk management strategy, then other aspects that affect decisions about the amount of risk protection a firm may need should also affect this relationship. We argue that CEOs’ ownership and firms’ political uncertainty may exacerbate exposure from firm risk taking to government actions, thus strengthening the insurance relationship. Similarly, we argue available slack, as a form of internal insurance against government actions, will weaken the relationship between strategic risk taking and lobbying breadth. We find support for most of our arguments in a sample of U. S. manufacturing firms. This research extends understanding of lobbying beyond the predominant focus on expenditures and securing beneficial outcomes. Exploring how lobbying breadth serves an important risk management role also offers insights into firm nonmarket strategy.