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The Role of Risk in Corporate Value: A Case Study of the ABB Asbestos Litigation

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  • Kristian Kallenberg

Abstract

The need for fair risk communication has emerged as a result of a more global and more flexible economy as well as of a media dominated world. Proper risk management and risk communication is therefore crucial today. The paper discusses the need for open and direct communication with the public in order to establish trust and to maintain market value. The case discussed is that of ABB (Asea Brown Boveri) asbestos litigation and the dramatic consequences it had for the company. During 2001 and 2002, the ABB share price fell by roughly 90 percent. The present study indicates that more than 50 percent of the fall was related to asbestos reporting by the media and ABB, primarily during the second half of 2002. The need for further understanding of and procedures for dealing with risks and risk communication in a business context is stressed. The outcome for ABB could have been different if more precise and defined ways of working with and communicating risks had been employed. Due to the asbestos crisis and the dramatic fall in ABB share price, ABB has implemented more structured operational risk management tools and displays a more outspoken awareness of environmental and social risk factors. This new strategy has emerged mainly as a result of an increased work with sustainability issues and a shift from a consensual/technocratic risk approach to a more deliberative mode of risk management.

Suggested Citation

  • Kristian Kallenberg, 2007. "The Role of Risk in Corporate Value: A Case Study of the ABB Asbestos Litigation," Journal of Risk Research, Taylor & Francis Journals, vol. 10(8), pages 1007-1025, December.
    • Handle: RePEc:taf:jriskr:v:10:y:2007:i:8:p:1007-1025
    DOI: 10.1080/13669870701497795
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    References listed on IDEAS

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    1. Michelle J. White, 2004. "Asbestos and the Future of Mass Torts," NBER Working Papers 10308, National Bureau of Economic Research, Inc.
    2. Michelle J. White, 2004. "Asbestos and the Future of Mass Torts," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 183-204, Spring.
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    Cited by:

    1. Sovan Mitra & Andreas Karathanasopoulos, 2019. "Firm Value and the Impact of Operational Management," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 26(1), pages 61-85, March.
    2. Brielle Lillywhite & Gregor Wolbring, 2022. "Risk Narrative of Emergency and Disaster Management, Preparedness, and Planning (EDMPP): The Importance of the ‘Social’," Sustainability, MDPI, vol. 15(1), pages 1-36, December.
    3. Zhuwei Li & Yucheng Wang & Lijie Yu & Hui An, 2016. "Relationship between initiative risk management and firm value: evidence from Chinese financial listed companies," Applied Economics, Taylor & Francis Journals, vol. 48(8), pages 658-668, February.

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