IDEAS home Printed from https://ideas.repec.org/a/gam/jrisks/v10y2022i9p182-d915205.html
   My bibliography  Save this article

Development of Risk Management Mechanism and the System of Risk Metrics to Evaluate and Enhance the Long-Term Orientation of the Strategies of Non-Financial Companies

Author

Listed:
  • Sergey Grishunin

    (School of Finance, HSE University, 101000 Moscow, Russia)

  • Svetlana Suloeva

    (Institute of Industrial Management, Economics and Trade, Peter the Great St. Petersburg Polytechnic University, 195251 Saint-Petersburg, Russia)

  • Ekaterina Burova

    (Institute of Industrial Management, Economics and Trade, Peter the Great St. Petersburg Polytechnic University, 195251 Saint-Petersburg, Russia)

Abstract

Companies that are performing innovation-focused strategies or experiencing digital transformation are exposed to significant long-term risks. The untimely and inefficient management of these risks leads to the destruction of the company’s value and calls into question its survival. This is often underpinned by companies following strategic management with a short-term horizon. Such “strategic myopia” prevents timely identification and treatment of strategic risks and destroys value due to physical and intellectual capital investment restrictions. However, the existing mechanisms of setting up risk management architecture neither addresses the lengths of the horizon and the alignment of the horizon with the strategic objectives, state of the environment and stakeholder expectations nor provides the tools for evaluating the horizon of the firm’s strategy. Moreover, existing systems of evaluating short-termism rely only on financial and governance metrics and do not address environmental and social factors. We closed these gaps and developed a strategic risk-controlling mechanisms to set up the risk management architecture that expanded “conventional” risk management analysis and addressed the “strategic myopia”. We also worked out the critical tool of the mechanism—the system of key risk metrics (SKRI) aimed at assessing the degree of a company’s following of long-term strategic orientation. Finally, we tested it on a sample of Russian non-financial companies. Testing results revealed a strong and positive correlation between the management’s decision to follow a long-term strategic focus and the growth of companies’ long-term value (measured by economic value added (EVA)). SKRI can be utilized in strategic risk controlling to assess the company’s propensity to follow a short-term horizon, evaluate its ability to maintain sustainable value creation, and develop recommendations to stakeholders to expand its strategic focus.

Suggested Citation

  • Sergey Grishunin & Svetlana Suloeva & Ekaterina Burova, 2022. "Development of Risk Management Mechanism and the System of Risk Metrics to Evaluate and Enhance the Long-Term Orientation of the Strategies of Non-Financial Companies," Risks, MDPI, vol. 10(9), pages 1-16, September.
    • Handle: RePEc:gam:jrisks:v:10:y:2022:i:9:p:182-:d:915205
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-9091/10/9/182/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2227-9091/10/9/182/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Pogach, Jonathan, 2018. "Short-termism of executive compensation," Journal of Economic Behavior & Organization, Elsevier, vol. 148(C), pages 150-170.
    2. Yujing Gong & Kung-Cheng Ho, 2021. "Corporate social responsibility and managerial short-termism," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 28(5), pages 604-630, September.
    3. Ikenberry, David & Lakonishok, Josef & Vermaelen, Theo, 1995. "Market underreaction to open market share repurchases," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 181-208.
    4. Louis K. C. Chan & Jason Karceski & Josef Lakonishok, 2003. "The Level and Persistence of Growth Rates," Journal of Finance, American Finance Association, vol. 58(2), pages 643-684, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Weiyu Zhang & Xinyue Li & Shaowei Liu & Jong-wook Kwon, 2023. "The Chairman’s Rural Origin and Short-Term Expenditures in China," Sustainability, MDPI, vol. 15(18), pages 1-20, September.
    2. Hasan Yalçın, 2024. "Metric Conflict in Financial Analysis: A Comparison and Application of EBITDA and EVA," Muhasebe Enstitusu Dergisi - Journal of Accounting Institute, Istanbul University Business School, vol. 0(70), pages 39-57, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chuan-Hao Hsu & Hung-Gay Fung & Yi-Ping Chang, 2016. "The performance of Taiwanese firms after a share repurchase announcement," Review of Quantitative Finance and Accounting, Springer, vol. 47(4), pages 1251-1269, November.
    2. David Hirshleifer & Danling Jiang, 2010. "A Financing-Based Misvaluation Factor and the Cross-Section of Expected Returns," The Review of Financial Studies, Society for Financial Studies, vol. 23(9), pages 3401-3436.
    3. Chen, Ni-Yun & Liu, Chi-Chun, 2021. "The effect of repurchase regulations on actual share reacquisitions and cost of debt," The North American Journal of Economics and Finance, Elsevier, vol. 55(C).
    4. Eero Pätäri & Timo Leivo, 2017. "A Closer Look At Value Premium: Literature Review And Synthesis," Journal of Economic Surveys, Wiley Blackwell, vol. 31(1), pages 79-168, February.
    5. Amrita S. Nain & Anand M. Vijh, 2021. "Do managers provide misleading earnings forecasts before stock repurchases?," Financial Management, Financial Management Association International, vol. 50(4), pages 1013-1046, December.
    6. Pantisa Pavabutr, 2021. "White Knights or Machiavellians? Understanding the motivation for reverse takeovers in Singapore and Thailand," PIER Discussion Papers 153, Puey Ungphakorn Institute for Economic Research.
    7. de Jong, Abe & Dutordoir, Marie & Verwijmeren, Patrick, 2011. "Why do convertible issuers simultaneously repurchase stock? An arbitrage-based explanation," Journal of Financial Economics, Elsevier, vol. 100(1), pages 113-129, April.
    8. Tokic, Damir, 2011. "Rational destabilizing speculation, positive feedback trading, and the oil bubble of 2008," Energy Policy, Elsevier, vol. 39(4), pages 2051-2061, April.
    9. Kim, Donghan & Kim, Jun Sik & Seo, Sung Won, 2018. "What options to trade and when: Evidence from seasoned equity offerings," Journal of Financial Markets, Elsevier, vol. 37(C), pages 70-96.
    10. Cristina Cella & Andrew Ellul & Mariassunta Giannetti, 2013. "Investors' Horizons and the Amplification of Market Shocks," The Review of Financial Studies, Society for Financial Studies, vol. 26(7), pages 1607-1648.
    11. Rutger-Jan Lange & Coen N. Teulings, 2021. "The option value of vacant land: Don't build when demand for housing is booming," Tinbergen Institute Discussion Papers 21-022/IV, Tinbergen Institute.
    12. Luís Krug Pacheco & Clara Raposo, 2009. "ON the TIMING of INITIAL STOCK REPURCHASES," Working Papers de Gestão (Management Working Papers) 06, Católica Porto Business School, Universidade Católica Portuguesa.
    13. Drobetz, Wolfgang & Pensa, Pascal & Wöhle, Claudia B., 2004. "Kapitalstrukturtheorie in Theorie und Praxis: Ergebnisse einer Fragebogenuntersuchung," Working papers 2004/09, Faculty of Business and Economics - University of Basel.
    14. Ndayisaba, Gilbert A. & Ahmed, Abdullahi D., 2021. "Demystifying the paradoxical popularity of stock buybacks in a market environment characterised by high stock prices," International Review of Financial Analysis, Elsevier, vol. 78(C).
    15. Paul Tanyi & David B. Smith & Xiaoyan Cheng, 2021. "Does firm payout policy affect shareholders’ dissatisfaction with directors?," Review of Quantitative Finance and Accounting, Springer, vol. 57(1), pages 279-320, July.
    16. Julian FRANKS & Colin MAYER & MIYAJIMA Hideaki & OGAWA Ryo, 2018. "Stock Repurchases and Corporate Control: Evidence from Japan," Discussion papers 18074, Research Institute of Economy, Trade and Industry (RIETI).
    17. Wang, Weimin & (Frank) Wang, Xu, 2014. "Predicting earnings in a poor information environment," Journal of Contemporary Accounting and Economics, Elsevier, vol. 10(1), pages 46-58.
    18. Taufiq Choudhry & Ranadeva Jayasekera, 2015. "Level of efficiency in the UK equity market: empirical study of the effects of the global financial crisis," Review of Quantitative Finance and Accounting, Springer, vol. 44(2), pages 213-242, February.
    19. Cristián Pinto, 2015. "The Role of Media in Share Repurchases," Serie Working Papers 22, Universidad del Desarrollo, School of Business and Economics.
    20. Ma, Pengfei & Li, Chengcheng & Wang, Xiaoqiong, 2024. "Why do undervalued firms repurchase shares? Evidence based on the market-timing effect in China," Global Finance Journal, Elsevier, vol. 59(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jrisks:v:10:y:2022:i:9:p:182-:d:915205. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.