Explaining the Relationship Pattern between Risk Management and Financial Performance of Banks

Subject Areas : Mathematical Methods in Financial, Physical, Biological, Social, and Behavioral Sciences.

Seyedeh Mahboobeh Jafari ¹ , Mohsen Hamidian ² , Gholam abbas taghian ³

1 -
2 - دانشیار گروه حسابداری، دانشکده اقتصاد و حسابداري دانشگاه آزاد اسلامي واحد تهران جنوب، تهران، ايران
3 - Department of accounting,Kish Iternational Branch,Islamic Azad University,Kish Island,Iran

Received: 2024-08-12 Accepted : 2024-11-23 Published : 2024-08-04

Keywords: Risk, Risk Management, Survey Approach, Poison Approach, Quantitative Approach,

Abstract :

In recent years there were companies such as banks which have used the value of quantitative analysis concerning operational information to evaluate the amount of risk as well as the risk involved in operating in some areas such as lending. Although risk management implementation may not specifically change the level of organizational risk, it is likely to affect the actual measurement and monitoring of risk across the company. As a result of targeting specific levels of risk, companies are likely to reduce performance-related volatility fluctuations while reducing the level of realization of their business goals and objectives, which include generating profits and increasing shareholder wealth. The purpose of this research is to explain the relationship between risk management and financial performance in banks. Risk management in banks has been used in this study using four methods of qualitative (artificial) evaluation, rating assessment, maturity level attitude and quantitative attitude. The first three cases were field research and expert opinion polls and the last was the financial information of 21 banks listed on the Tehran Stock Exchange during the period 2013 to 2019. The purpose of this research is applied research and correlation analysis and regression are used in the analysis of relationships. The results of estimating the relationship between quantitative risk management with banks' financial performance showed a direct relationship between risk management and adjusted return on assets.

References:

[1]Armstrong, C., Guay, W. R., Mehran, H., & Weber, J. (2016). The role of financial reporting transparency in corporate governance. Economic Policy Review, 107–128 (August). Doi: 10.1007/978-3-540-24854-5_87
[2]Asgarnejad Nouri, Baqer; Possibility, Parisa. (2017). the Impact of Effective Risk Management on the Financial Performance of Companies Listed on the Tehran Stock Exchange, Asset Management-Financing Quarterly, Fourth Year, No. 17, pp. 112-93. Doi: 10.1007/s00500-016-2442-1
[3]Baxter, R., Bedard, J., Hoitash, R., & Yezegel, A. (2013). Enterprise risk management program quality: Determinants, value relevance, and the financial crisis. Contemporary Accounting Research, 30(4), 1264–1295. Doi: 10.3390/a8020292
[4]Beasley, M., Pagach, D., & Warr, R. (2008). Information conveyed in hiring announcements of senior executives overseeing enterprise-wide risk management processes. Journal of Accounting Auditing Finance, 23(3), 311–332. Doi: 10.17485/ijst/2014/v8iS8/71505
[5]Bushman, R. M. (2014). Thoughts on financial accounting and the banking industry. Journal of Accounting and Economics, 58(2–3), 384–395. Doi: 10.1109/MHS.2021.494215
[6]Damodaran, A. (2011). The little book of valuation: How to value a company, pick a stock and profit. New York: John Wiley & Sons. Doi: 10.3390/e22111239
[7]Florio, C., & Leoni, G. (2017). Enterprise risk management and firm performance: The Italian case. The British Accounting Review, 49(1), 56-74. Doi: 10.1080/01969722.2003.1285162
[8]Georgescu, D. I., Higham, N. J., & Peters, G. W. (2018). Explicit solutions to correlation matrix completion problems, with an application to risk management and insurance. Royal Society open science, 5(3), and 172348. Doi: 10.1016/j.ins.200..08.023
[8]Gordon, L. A., Loeb, M. P., & Tseng, C. (2009). Enterprise risk management and firm performance: A contingency perspective. Journal of Accounting and Public Policy, 28, 301–327. Doi: 10.1007/s00500-018-3424-2
[9]Hoffmann, L. (2018). RISC management. Communications of the ACM, 61(6), 104-ff. Doi: 10.1007/978-3-030-12127-3_3
[10]Hosseini, Seyed Abdolreza; Hosseini, Seyed Mohammad Hossein; Seyed Motahari, Seyed Mehdi (2015), The relationship between company risk management and company performance, Empirical Accounting Research, Fourth Year, No. 13, pp. 45-60. Doi: 10.22034/amfa.2020.674953
[11]Hoyt, R. E., & Liebenberg, A. P. (2011). The value of enterprise risk management. The Journal of Risk and Insurance, 78(4), 795–822. Doi: 10.1007/s11831-020-09413-5
[12]Husted, B. W., & de Sousa-Filho, J. M. (2017). The impact of sustainability governance, country stakeholder orientation, and country risk on environmental, social, and governance performance. Journal of cleaner production, 155, 93-102. Doi: 10.22034/amfa.1994.1863963.1195
[13]Izadpanahi, Sarah. (2009). Relationship between firm risk management techniques in the field of financial and operational risks with value creation in Iranian insurance companies, Master Thesis in Accounting, School of Management and Accounting, Allameh Tabatabaei University. Doi: 10.1016/j.ejor.2020.04.019

[14]Koufteros, X., Verghese, A., & Lucianetti, L. (2014). The effect of performance measurement systems on firm performance: A cross-sectional and a longitudinal study. Journal of Operations Management, 32(6), 313–336. Doi: 10.22034/amfa.1994.1863963.1195
[15]McShane, M., Nair, A., & Rustambekov, E. (2011). Does enterprise risk management increase firm value? Journal of Accounting Auditing and Finance, 26(4), 641–658. Doi: 10.1142/S0218213016500330.
[16]Mesbahi, Maryam; Jafari, Naima. (2016). The Impact of Bank Credit Risk and Financial Performance on Banks Listed on Tehran Stock Exchange, Mazandaran, 3rd International Conference on New Research in Management, Economics and Accounting, Istanbul, Turkey. Doi 10.22034/AMFA.2016.526246.
[17]Mohammed, H.K., Knapkova, A. (2017). The Impact of Total Risk Management on Company’s Performance. 19th International Conference Enterprise and Competitive Environment 2016, ECE 2016, 10–11 March 2016, Brno, Czech Republic. Doi: 10.22034/AMFA.2020.1885620.1343
[18]Monda, B., & Giorgino, M. (2013). An ERM maturity model (January 10, 2013). (Available at SSRN :) http://ssrn.com/abstract=2198944http://dx.doi.org/10.2139/ssrn.2198944.
[19]Pagach, D., & Warr, R. (2010). The effects of enterprise risk management on firm performance (April 10, 2010). (Available at SSRN :) http://ssrn.com/abstract= 1155218http://dx.doi.org/10.2139/ssrn.1155218. Doi: 10.1109/MHS.2016.494215
[20]Pagach, D., & Warr, R. (2011). The characteristics of firms that hire chief risk officers. The Journal of Risk and Insurance, 78(1), 185–211. Doi: 10.1007/s11831-020-09413-5
[21]Pezeshki, Reza; Pahlavan, Samaneh (2016). The Relationship between Credit Risk and Liquidity with the Profitability Predictability of Banks Listed on the Tehran Stock Exchange, Quarterly Journal of Financial Studies and Islamic Banking, Third Year, No. 6 and 7, pp. 177-157. Doi: 10.3390/e22111239
[22]Saiful (2017).Conting Factors, Risk Management and Performance of Indonesian Banks. Asian Journal of Financial and Accounting, 1, 35-53. Doi: 10.3390/e22111239