Skip to main content
SpringerLink
Log in

Exploring the Effect of Effective Risk Management Capabilities

  • Chapter
Book cover Contemporary Challenges in Risk Management

Abstract

A number of empirical studies have found significant increases in performance volatility and firm exits as periods of industry leadership become ever shorter (Baker and Kennedy, 2002; Comin and Philippon, 2006; Thomas and D’Aveni, 2009; Wiggins and Ruefli, 2005). These findings seem to reflect a more hostile and unforgiving competitive landscape, where it is difficult to sustain competitive advantage, and where the consequences of mal-adaptation are increasingly severe. The challenge of competing under uncertainty has been at the core of strategy and organization theory for a long time (Thompson, 1967), as the failure to respond to environmental change can badly hurt firm performance (Audia et al., 2000). These developments have encouraged the use of formal enterprise risk management frameworks (e.g. COSO, FERMA and ISO),1 and promoted Chief Risk Officers to oversee them (Liebenberg and Hoyt, 2003; Meulbroek, 2002; Pagach and Warr, 2011). Similarly, a number of studies have investigated the use of derivative instruments and found that it reduces price sensitivity, where lower cash flow variability is associated with favorable financing costs and higher stock valuations (e.g. Minton and Schrand, 1999; Rountree et al., 2005).

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 84.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 109.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 109.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  • Allayannis G, Weston J (2001). The use of foreign currency derivatives and firm market value. Review of Financial Studies 14(1): 243–276.

    Article  Google Scholar 

  • Altman E. (1983). Corporate Distress: A Complete Guide to Predicting, Avoiding and Dealing with Bankruptcy. Wiley: New York, NY.

    Google Scholar 

  • Ambrosini V, Bowman C. (2009). What are dynamic capabilities and are they a useful construct in strategic management? International Journal of Management Reviews 11(1): 29–49.

    Article  Google Scholar 

  • Andersen T. (2009). Effective risk management outcomes: Exploring effects of innovation and capital structure. Journal of Strategy and Management 2(4): 352–379.

    Article  Google Scholar 

  • Andersen T, Denrell J, Bettis R. (2007). Strategic responsiveness and Bowman’s risk–return paradox. Strategic Management Journal 28: 407–429.

    Article  Google Scholar 

  • Audia P, Locke E, Smith K. (2000). The paradox of success: An archival and a laboratory study of strategic persistence following radical environmental change. Academy of Management Journal 43(5): 837–853.

    Article  Google Scholar 

  • Baker G, Kennedy, R. (2002). Survivorship and the economic grim reaper. Journal of Law, Economics, and Organization 18(2): 324–361.

    Article  Google Scholar 

  • Barney J. (1991). Firm resources and sustained competitive advantage. Journal of Management 17(1): 99–120.

    Article  Google Scholar 

  • Barreto I. (2010). Dynamic capabilities: A review of past research and an agenda for the future. Journal of Management 36(1): 256–280.

    Article  Google Scholar 

  • Baucus D, Golec J, Cooper, J. (1993). Estimating risk-return relationships: An analysis of measures. Strategic Management Journal 14(5): 387–396.

    Article  Google Scholar 

  • Beaver W, Kettler P, and Scholes M. (1970). The association between market determined and accounting determined risk measures. The Accounting Review 45(4), 654–682.

    Google Scholar 

  • Ben-Zion U, Shalit S. (1975). Size, leverage, and dividend record as determinants of equity risk. The Journal of Finance 30(4): 1015–1026.

    Article  Google Scholar 

  • Bettis R, and Mahajan V. (1985). Risk/return performance of diversified firms. Management Science 31(7): 785–799.

    Article  Google Scholar 

  • Bodie Z. (2007). Investments. McGraw-Hill: New York, NY.

    Google Scholar 

  • Brealey R, Myers S, Allen F. (2007). Principles of Corporate Finance (7th ed.). McGraw-Hill/Irwin: New York, NY.

    Google Scholar 

  • Carter M, Shawn-Schmidt B. (2008). The relationship between dividend payouts and systematic risk: A mathematical approach. Academy of Accounting and Financial Studies Journal 12(2): 93–100.

    Google Scholar 

  • Chiu Y, Liaw Y. (2009). Organizational slack: Is more or less better? Journal of Organizational Change Management 22(3): 312–342.

    Article  Google Scholar 

  • Comin D, Philippon T. (2006). The rise in firm-level volatility: Causes and consequences. NBER Macroeconomics Annual 20: 167–228.

    Google Scholar 

  • Damodaran A. (2012). Investment Valuation: Tools and Techniques for Determining the Value of Any Asset. John Wiley and Sons: New York,NY.

    Google Scholar 

  • Danneels E. (2002). The dynamics of product innovation and firm competences. Strategic Management Journal 23: 1095–1121.

    Article  Google Scholar 

  • Dierickx I, Cool K. (1989). Asset stock accumulation and sustainability of competitive advantage. Management Science 35(12): 1504–1511.

    Article  Google Scholar 

  • Easterby-Smith M, Lyles M, Peteraf M. (2009). Dynamic capabilities: current debates and future directions. British Journal of Management 20: S1–S8.

    Article  Google Scholar 

  • Eisenhardt K, Martin J. (2000). Dynamic capabilities: What are they? Strategic Management Journal 21: 1105–1121.

    Article  Google Scholar 

  • Erickson G, Jacobson R. (1992). Gaining comparative advantage through discretionary expenditures: The returns to R&D and advertising. Management Science 38(9): 1264–1279.

    Article  Google Scholar 

  • Fama E, French K. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics 33: 3–56.

    Article  Google Scholar 

  • Fiegenbaum A, Thomas H. (1986). Dynamic and risk measurement perspectives on bowman’s risk-return paradox for strategic management: An empirical study. Strategic Management Journal 7: 395–408.

    Article  Google Scholar 

  • Galunic D, Eisenhardt K. (2001). Architectural innovation and modular corporate forms. Academy of Management Journal 44(6): 1229–1249.

    Article  Google Scholar 

  • George G. (2005). Slack resources and the performance of privately held firms. Academy of Management Journal 48(4): 661–676.

    Article  Google Scholar 

  • Helfat C. (1997). Know-how and asset complementarity and dynamic capability accumulation: The case of R&D. Strategic Management Journal 18(5): 339–360.

    Article  Google Scholar 

  • Helfat C, Winter S. (2011). Untangling dynamic and operational capabilities: Strategy for the (N)ever-changing world. Strategic Management Journal 32: 1243–1250.

    Article  Google Scholar 

  • Helfat CE, Finkelstein S, Mitchell W, Peteraf MA, Singh H, Teece DJ, Winter SG. (2007). Dynamic Capabilities: Understanding Strategic Change in Organizations. Blackwell Publishing: Malden, MA.

    Google Scholar 

  • Henderson R, Cockburn I. (1994). Measuring competence? Exploring firm effects in pharmaceutical research. Strategic Management Journal 15 (Winter special issue): 63–84.

    Article  Google Scholar 

  • Henriksen P, Uhlenfeldt T. (2006). Contemporary enterprise-wide risk management frameworks: A comparative analysis in a strategic perspective, in Andersen TJ (ed.), Pers pectiveson Strategic Risk Management , 1st ed. Copenhagen, Denmark: Copenhagen Business School Press.

    Google Scholar 

  • Hipp C, Grupp H. (2005). Innovation in the service sector: The demand for service-specific innovation measurement concepts and typologies. Research Policy 34(4): 517–535.

    Article  Google Scholar 

  • Ho Y, Tjahjapranata M, Yap C. (2006). Size, leverage, concentration, and R&D investment in generating growth opportunities. The Journal of Business 79(2): 851–876.

    Article  Google Scholar 

  • Hoskisson R, Hitt M, Wan W, and Yiu D. (1999). Theory and research in strategic management: Swings of a pendulum. Journal of Management 25(3): 417–456.

    Article  Google Scholar 

  • Hurdle G. (1974). Leverage, risk, market structure and profitability. The Review of Economics and Statistics 56(4): 478–485.

    Article  Google Scholar 

  • Iansiti M, Clark K. (1994). Integration and dynamic capability: Evidence from product development in automobiles and mainframe computers. Industrial and Corporate Change 3(3): 557–605.

    Article  Google Scholar 

  • Jermias J. (2008). The relative influence of competitive intensity and business strategy on the relationship between financial leverage and performance. The British Accounting Review 40(1): 71–86.

    Article  Google Scholar 

  • Joshi A, Hanssens D. (2010). The direct and indirect effects of advertising spending on firm value. Journal of Marketing 74(1) 20–33.

    Article  Google Scholar 

  • Kale P, Dyer J, Singh H. (2002). Alliance capability, stock market response, and long-term alliance success: The role of the alliance function. Strategic Management Journal 23: 747–767.

    Article  Google Scholar 

  • Kale P, Singh H. (2007). Building firm capabilities through learning: The role of the alliance learning process in alliance capability and firm-level alliance success. Strategic Management Journal 28: 981–1000.

    Article  Google Scholar 

  • Karim S, Mitchell W. (2000). Path-dependent and path-breaking change: Reconfiguring business resources following acquisitions in the US medical sector 1978–1995. Strategic Management Journal 21: 1061–1081.

    Article  Google Scholar 

  • Kleinknecht A. (1987). Measuring R&D in small firms: How much are we missing? The Journal of Industrial Economics 36(2): 253–256.

    Article  Google Scholar 

  • Kotabe M, Srinivasan S, Aulakh P. (2002). Multinationality and firm performance: The moderating role of R&D and marketing capabilities. Journal of International Business Studies 33(1): 79–97.

    Article  Google Scholar 

  • Lampel J, Shamsie J. (2003). Capabilities in motion: new organizational forms and the reshaping of the Hollywood movie industry. Journal of Management Studies 40(8): 2189–2210.

    Article  Google Scholar 

  • Leone R. (1995). Generalizing what is known about temporal aggregation and advertising carryover. Marketing Science 14(3): G141–150.

    Article  Google Scholar 

  • Lev B, Radhakrishnan S. (2005). The valuation of organization capital, in Corrado C, Haltiwanger J. (eds), Measuring Capital in the New Economy, 1st ed. University of Chicago Press: Chicago, IL, 73–110.

    Chapter  Google Scholar 

  • Liebenberg A, Hoyt R. (2003). The determinants of enterprise risk management: Evidence from the appointment of chief risk officers. Risk Management and Insurance Review 6(1): 37–52.

    Article  Google Scholar 

  • Lintner J. (1965). The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets. The Review of Economics and Statistics 47(1): 13–37.

    Article  Google Scholar 

  • Love EG, Nohria N. (2005). Reducing slack: The performance consequences of downsizing by large industrial firms, 1977–93. Strategic Management Journal 26(12): 1087–1108.

    Article  Google Scholar 

  • Lu J, Beamish P. (2004). International diversification and firm performance: The S-curve hypothesis. Academy of Management Journal 47(4): 598–609.

    Article  Google Scholar 

  • Makadok R. (2001). Toward a synthesis of the resource – based and dynamic – capability views of rent creation. Strategic Management Journal 22(5): 387–401.

    Article  Google Scholar 

  • Martin JA, Eisenhardt KE. (2010). Rewiring: Cross-business-unit collaborations in multibusiness organizations. Academy of Management Journal 53(2): 265–301.

    Article  Google Scholar 

  • McAlister L, Srinivasan R, Kim M. (2007). Advertising, research and development, and systematic risk of the firm. Journal of Marketing 71: 35–48.

    Article  Google Scholar 

  • McGahan A, Porter M. (1997). How much does industry matter, really? Strategic Management Journal 18: 15–30.

    Article  Google Scholar 

  • McGrath RG, Nerkar A. (2003). Real options reasoning and a new look at the R&D investment strategies of pharmaceutical firms. Strategic Management Journal 25: 1–21.

    Article  Google Scholar 

  • Meulbroek L. (2002). The promise and challenge of integrated risk management. Risk Management and Insurance Review 5(1): 55–66.

    Article  Google Scholar 

  • Miller K. (1998). Economic exposure and integrated risk management. Strategic Management Journal 19(5): 497–514.

    Article  Google Scholar 

  • Miller K, Chen W. (2003). Risk and firms’ costs. Strategic Organization 1(4): 355–382.

    Article  Google Scholar 

  • Miller K, Leiblein M. (1996). Corporate risk-return relations: Returns variability versus downside risk. Academy of Management Journal 39(1): 91–122.

    Article  Google Scholar 

  • Miller P, Kurunmäki L, O’Leary T. (2008). Accounting, hybrids and the management of risk. Accounting, Organizations and Society 33(7–8): 942–967.

    Article  Google Scholar 

  • Minton B, Schrand C. (1999). The impact of cash flow volatility on discretionary investment and the costs of debt and equity financing. Journal of Financial Economics 54: 423–460.

    Article  Google Scholar 

  • Mintzberg H, Waters J. (1985). Of strategies, deliberate and emergent. Strategic Management Journal 6(3): 257–272.

    Article  Google Scholar 

  • Moliterno T, and Wiersema M. (2007). Firm performance, rent appropriation, and the strategic resource divestment capability. Strategic Management Journal 28(11): 1065–1087.

    Article  Google Scholar 

  • O’Brien J. (2003). The capital structure implications of pursuing a strategy of innovation. Strategic Management Journal 24: 415–431.

    Article  Google Scholar 

  • Pablo A, Reay T, Dewald J, Casebeer A. (2007). Identifying, enabling and managing dynamic capabilities in the public sector. Journal of Management Studies 44(5): 687–708.

    Article  Google Scholar 

  • Pagach D, Warr R. (2011). The characteristics of firms that hire chief risk officers. Journal of Risk and Insurance 78(1): 185–211.

    Article  Google Scholar 

  • Palmer T, and Wiseman R. (1999). Decoupling risk taking from income stream uncertainty: A holistic model of risk. Strategic Management Journal 20: 1037–1062.

    Article  Google Scholar 

  • Penrose E. (1959). The Theory of the Growth of the Firm. John Wiley and Sons: New York, NY.

    Google Scholar 

  • Porter M. (1979). How competitive forces shape strategy. Harvard Business Review 57(2): 137–145.

    Google Scholar 

  • Porter M. (1980). Competitive Strategy: Techniques for Analyzing Industry and Competitors. Free Press: New York, NY.

    Google Scholar 

  • Power M. (2007). Organized Uncertainty: Designing a World of Risk Management. Oxford University Press: Oxford.

    Google Scholar 

  • Rajan R, Zingales L. (1995). What do we know about capital structure? Some evidence from international data. The Journal of Finance 50: 1421–1460.

    Article  Google Scholar 

  • Reuer J, Leiblein M. (2000). Downside risk implications of multinationality and international joint ventures. Academy of Management Journal 43(2): 203–214.

    Article  Google Scholar 

  • Rosenbloom R. (2000). Leadership, capabilities, and technological change: The transformation of NCR in the electronic era. Strategic Management Journal 21: 1083–1103.

    Article  Google Scholar 

  • Rountree B, Weston J, Allayannis G. (2008). Do investors value smooth performance? Journal of Financial Economics 90(3): 237–251.

    Article  Google Scholar 

  • Ruefli T. (1990). Mean-variance approaches to risk-return relationships in strategy: Paradox lost. Management Science 36(3): 368–380.

    Article  Google Scholar 

  • Ruefli T, Wiggins R. (2003). Industry, corporate, and segment effects and business performance: A non-parametric approach. Strategic Management Journal 24: 861–879.

    Article  Google Scholar 

  • Rumelt R, Schendel D, Teece D. (1994). Fundamental Issues in Strategy. Harvard Business School Press: Boston, MA; Cambridge, MA.

    Google Scholar 

  • Sharpe W. (1964). Capital asset prices: A theory of market equilibrium under conditions of risk. The Journal of Finance 19(3): 425–442.

    Google Scholar 

  • Shin H, Stulz R. (2000). “Shareholder wealth and firm risk”. National Bureau of Economic Research Working Paper no. 7808.

    Google Scholar 

  • Simerly R, Li M. (2002). Environmental dynamism, capital structure and innovation: An empirical test. International Journal of Organizational Analysis 10(2): 156–171.

    Article  Google Scholar 

  • Smithson C, Simkins B. (2005). Does risk management add value? A survey of the evidence. Journal of Applied Corporate Finance 17(3): 8–17.

    Article  Google Scholar 

  • Teece D, Pisano G, Shuen A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal 18(7): 509–533.

    Article  Google Scholar 

  • Teece DJ. (2007). Explicating dynamic capabilities: The nature and microfoun-dations of (sustainable) enterprise performance. Strategic Management Journal 28: 1319–1350.

    Article  Google Scholar 

  • Thomas L, D’Aveni R. (2009). The changing nature of competition in the US manufacturing sector, 1950–2002. Strategic Organization 7(4): 387–431.

    Article  Google Scholar 

  • Thompson J. (1967). Organizations in Action: Social Science Bases of Administrative Theory. McGraw-Hill: New York, NY.

    Google Scholar 

  • Tong T, Reuer J. (2007). Real options in multinational corporations: Organizational challenges and risk implications. Journal of International Business Studies 38(2): 215–230.

    Article  Google Scholar 

  • Vicente-Lorente J. (2001). Specificity and opacity as resource–based determinants of capital structure: Evidence for Spanish manufacturing firms. Strategic Management Journal 22: 157–171.

    Article  Google Scholar 

  • White H. (1980). A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity. Econometrica 48: 817–838.

    Article  Google Scholar 

  • Wiggins RR, Ruefli TW. (2005). Schumpeter’s ghost: Is hypercompetition making the best of times shorter? Strategic Management Journal 26(10): 887–911.

    Article  Google Scholar 

  • Winter S. (2003). Understanding dynamic capabilities. Strategic Management Journal 24(10): 991–995.

    Article  Google Scholar 

  • Wiseman R, Catanach A. (1997). A longitudinal disaggregation of operational risk under changing regulations: Evidence from the savings and loan industry. Academy of Management Journal 40: 799–830.

    Article  Google Scholar 

  • Wooldridge J. (2009). Introductory Econometrics: A Modern Approach, 4th ed. Thompson Southwestern: Mason, OH.

    Google Scholar 

  • Zollo M, Winter S. (2002). Deliberate learning and the evolution of dynamic capabilities. Organization Science 13: 339–351.

    Article  Google Scholar 

Download references

Authors
  1. Anders Ø. Hansen
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Torben J. Andersen
    View author publications

    You can also search for this author in PubMed Google Scholar

Editor information

Editors and Affiliations

  1. Copenhagen Business School, Denmark

    Torben Juul Andersen

Copyright information

© 2014 Anders Ø. Hansen and Torben J. Andersen

About this chapter

Cite this chapter

Hansen, A.Ø., Andersen, T.J. (2014). Exploring the Effect of Effective Risk Management Capabilities. In: Andersen, T.J. (eds) Contemporary Challenges in Risk Management. Palgrave Macmillan, London. https://doi.org/10.1057/9781137447623_5

Download citation

Publish with us

Policies and ethics

Search

Navigation