Risk Category and Spatial Distance Effects in Enterprise Risk Management Practice
Posted: 18 May 2020 Last revised: 6 May 2022
Date Written: April 22, 2022
Abstract
Research suggests corporate board members would like to receive more information about how risk probabilities are estimated. We examine how spatial distance from a risk assessment target and risk category (operational vs. non-operational risk factors) affects decision-makers’ assessment of the probability that a given risk will materialize. Results from an experiment involving 141 risk managers provide some support for spatial distance effects. Importantly, we find the difference in decision-makers’ probability assessments between operational and non-operational risk factors is greater when assessing a proximate rather than a remote target. We contribute to the accounting literature by demonstrating how spatial distance affects probability judgments. This is important as probability judgments are not only prevalent in managerial decision-making contexts but also in audit, tax, and other settings where decision-targets may be spatially removed from the decision-maker.
Keywords: enterprise risk management (ERM), probability assessment, risk category, risk disclosure, risk register, risk database
JEL Classification: M41, M42
Suggested Citation: Suggested Citation
