Risk Taking, Principal Agent Problems and Breakdown of Corporate Social Responsibility (CSR): How to Reestablish Safe-Assets and Capital Funding for Social Security?
AbstractThe breakdown of the financial markets in fall 2007 and the following debt crisis in the EU has produced an enormous mistrust in financial products and the monetary system. The paper describes the background of the crisis induced by functional failures in risk management and the multifold principal agent problems existing in the financial market structures. The innovated nontransparent financial products have mixed up different risk weights and puzzled, or even fooled formerly loyal customers. Contemporaneously abundant liquidity on the international financial market accompanied by easy money policies of the Fed in the US and the ECB in the euro zone have depressed the real interest rate to zero or even negative values. Desperate investors are seeking for safe-assets, but their demand remains unsatisfied. Low real interest rates and the consequently lacking compound interest effect in the same time jeopardize private as well as public insurance schemes being dependent on capital funding: the demographic crisis becomes gloomy. Therefore, the managers of the financial markets have to reestablish CSR and to divide the markets into safe-asset areas for the usual cli-ents and “casino” areas for those who like to play with high risks. Only with transparency and risk adequate financial products can the lost commitment be regained.
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Bibliographic InfoArticle provided by Uniwersytet Mikolaja Kopernika in its journal Equilibrium. Quarterly Journal of Economics and Economic Policy.
Volume (Year): 8, Issue 2 (2013)
Issue (Month): ()
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Capital funding; corporate social responsibility; financial markets; principal agent problems; risk management;
Find related papers by JEL classification:
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- G01 - Financial Economics - - General - - - Financial Crises
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- M14 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
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- Hans Georg Petersen, 2004. "Redistribution and the Efficiency," STUDI ECONOMICI, FrancoAngeli Editore, vol. 2004(82).
- Hans-Georg Petersen, 2010. "Steuern in Fragilen Staaten : Empfehlungen für die Entwicklungszusammenarbeit," Finanzwissenschaftliche DiskussionsbeitrÃ¤ge 61, Universität Potsdam, Wirtschafts- und Sozialwissenschaftliche Fakultät.
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