The Impact of Quantitative versus Qualitative Risk Reporting on Risk Professionals' Strategic and Operational Risk Judgments

Abstract

SYNOPSIS Enterprise risk management (ERM) programs are an emerging component of managerial accounting that enable senior management to manage critical threats to the organization and identify strategic opportunities to exploit. A growing area of debate within ERM involves the extent to which risk reports should be assessed qualitatively or measured quantitatively (Risk and Insurance Management Society [RIMS] 2012). In many settings, quantitative reports are used and appear to be preferred due to their precision. Additional research suggests, however, that the directional nature of qualitative reports might fit better with senior management's cognitive expectations when considering strategic risks. We conduct an experiment that manipulates risk reporting format (quantitative versus qualitative) across both strategic and operational settings to examine their impact on risk management professionals' perceptions related to the preparer of the reports and the underlying quality of the information. We find that qualitative (quantitative) report information has a positive (negative) indirect association with managerial perceptions regarding strategic risk management activities. Specifically, in the strategic risk setting, the choice of format is directly associated with the perceived reliability and perceived relevance of the risk information. However, we do not find this relationship in the setting where risk reports focus on operational risks. These findings suggest that senior management favors qualitative information for strategic risks, whereas they are skeptical about quantitative measures for complex strategic risks.

Risk management and corporate governance of Islamic banks: evidence from GCC countries

“…This has been discussed and accepted by various studies. There is a relationship between wealth maximization and effective risk management practices and CG management (Hassan, 2018; Lyon and Popov, 2017; Pravesh and Sanjeev, 2016; Stoel, 2017). The result of the present study also found that there is a relationship between wealth maximization, efficient risk management and CG.…”

“…They need reliable tools and techniques to mitigate risk management for sustainable growth (Lyon and Popov, 2017). Operational risks have become significant issues for many organizations because of competitive environmental requirements with compliance or regulations (Stoel, 2017). Lyon and Popov (2017) mentioned that issues related to governance and internal controls in the sector have greatly affected the operating capacity of banks.…”

The Role of Enterprise Risk Management in Sustainable Decision-Making: A Cross-Cultural Comparison

“…First, this study contributes to the scant ERM literature by responding to a call for more research regarding the role of culture in sustainable decision-making [16]. Despite the importance of risk management in corporate governance, a thorough search of the existing literature on risk management yielded limited empirical studies that have explicitly examined the antecedents of an effective ERM program [16][17][18][19]. Even fewer studies have explored the role of cultural factors in risk management [20,21].…”

The Impact of Human Rights Reporting and Presentation Formats on Non-Professional Investors’ Perceptions and Intentions to Invest

“…Recent academic research on presentation format focuses on areas such as balanced scorecards [77][78][79], pro forma earnings information [38,80,81], and risk management [82]. These studies examine the effect of presentation formats, and they mostly rely on theories related to cognitive load.…”