An analysis of the relation between enterprise risk management (ERM) information disclosure and traditional risk measures in the US banking sector

Abstract

The purpose of this article is to validate the quality and the relevance of enterprise risk management (ERM) information disclosure by analyzing the relation between the different dimensions of ERM disclosed in the annual report and the traditional measures of risk in the US banking sector. We use content analysis to measure ERM dimensions and a correlation analysis to document the links between risk exposure, consequences, and strategies (Aebi, Sabato, & Schimd, 2012), and the traditional measures of risk (Schnatterly, Clark, Howe, & DeVaughn, 2019) disclosed in the annual reports from 2006 to 2009. We then separately make the analysis for the period before and after the crisis to identify any effect of the crisis on ERM information’s ability to predict and reflect the banking sector’s traditional risk (Maingot, Quon, & Zéghal, 2018). Our results reveal the overall validity of ERM information in assessing traditional risk measures through a significant correlation between ERM exposure, consequences and strategies, and most of the traditional measures of risk. Finally, we confirmed the relevance and the robustness of our results through a portfolio analysis approach. This research sheds new light on the relevance of ERM information by introducing a new framework and a new methodology for assessing the validity of this information within the banking sector, where risk management plays a vital role. The results are potentially useful for banks regulators as well as for producers and users of the information on banking risks.

An Exploratory Study On Rısk Management Dısclosure On Conventıonal Commercıal Banks In Indonesıa

“…Conversely, if the company has a small number on its profitability, explaining that the company needs more costs to meet operational needs, the company will be more risky than companies that have high profitability. This study has similar results to studies that have been conducted by (Wicaksono & Adiwibowo, 2017), (Susanti et al, 2018), (Puspitaningrum & Taswan, 2020), (Gouiaa et al, 2020), dan (Lechner & Gatzert, 2018.…”

“…This is in accordance with stakeholder theory, namely, the more stakeholders of a company, the wider the risk management disclosure, to meet the needs of stakeholders. This study has similar results to the research conducted by (Puspitaningrum & Taswan, 2020), (Arief et al, 2020), (Gunawan & Zakiyah, 2017), (Gouiaa et al, 2020), (Nahar et al, 2016, (Zeghal & El Aoun, 2016;Lechner & Gatzert, 2018), (Adam-Müller & Erkens, 2020) and (Tzouvanas et al, 2020).…”

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“…In this context the need to revise strategies, and apply advanced monitoring and proactive evaluation technologies sharply increases, including stress testing, foresight studies, scenario planning, etc. Classic risk management tools include such indicators as liquidity and capital ratio, growth rates, return on assets, and financial instruments to total assets ratio (Gouiaa et al, 2020). However, this established "arsenal" turned out to be powerless in the face of major shocks of the last two decades (the financial crisis of 2008, the COVID-19 pandemic, etc.…”

Risk Management Strategies for the Banking Sector to Cope with the Emerging Challenges

“…In this context the need to revise strategies, and apply advanced monitoring and proactive evaluation technologies sharply increases, including stress testing, foresight studies, scenario planning, etc. Classic risk management tools include such indicators as liquidity and capital ratio, growth rates, return on assets, and financial instruments to total assets ratio (Gouiaa et al, 2020). However, this established "arsenal" turned out to be powerless in the face of major shocks of the last two decades (the financial crisis of 2008, the COVID-19 pandemic, etc.…”