Are Exogenous Risk Management Requirements Value- or Cost-Enhancing?

7th International Conference «Economic integration, cooperation and competition», Opatija, Croatia, 2009.

20 Pages Posted: 19 Mar 2013 Last revised: 17 Apr 2013

See all articles by Ales S. Berk

Ales S. Berk

FELU / University of Ljubljana - Faculty of Economics

Igor Loncarski

University of Ljubljana - Faculty of Economics

Date Written: March 13, 2013

Abstract

In this paper we report current practices of risk management in Slovenian companies and relate the incentives for risk management in post-transitional legal and business environment to the neoclassical theoretical motives for risk management. We find that in such environment, which more or less characterizes most of the Eastern European countries, neoclassical theoretical motives do not provide sufficient (endogenous) incentives to shareholders and managers to manage risk within firms. We argue that compulsory use of International Financial Reporting Standard (IFRS) disclosure requirements induce managers to actively analyze and manage risks. We see this exogenous push as necessary but unfortunately not sufficient mechanism to induce managers to manage risk within firms, since managers perceive the reporting requirements primarily as cost-enhancing. We argue that in order to endogenize the incentives governments need to create market conditions under which managers will also see the added value of the risk management. This will predominantly require change in mechanisms of corporate governance.

Keywords: risk management, derivatives, survey results, regulation, institutional factors

JEL Classification: G3

Suggested Citation

Berk, Ales S. and Lončarski, Igor, Are Exogenous Risk Management Requirements Value- or Cost-Enhancing? (March 13, 2013). 7th International Conference «Economic integration, cooperation and competition», Opatija, Croatia, 2009.. Available at SSRN: https://ssrn.com/abstract=2232844 or http://dx.doi.org/10.2139/ssrn.2232844

Ales S. Berk (Contact Author)

FELU / University of Ljubljana - Faculty of Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia

Igor Lončarski

University of Ljubljana - Faculty of Economics ( email )

Kardeljeva ploscad 17
Ljubljana, SI-1000
Slovenia
+386 5892 628 (Phone)
+386 5892 698 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
23
Abstract Views
242
PlumX Metrics