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Risk Management Failures: What Are They and When Do They Happen?

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  • René M. Stulz

Abstract

The difficulties of the past year have convinced many observers that current risk management practices are deeply flawed, and that such flaws have contributed greatly to the current financial crisis. In this paper, the author challenges this view by showing the need to distinguish between flawed assessments by risk managers and corporate risk-taking decisions that, although resulting in losses, were reasonable at the time they were made. Copyright (c) 2008 Morgan Stanley.

Suggested Citation

  • René M. Stulz, 2008. "Risk Management Failures: What Are They and When Do They Happen?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 20(4), pages 39-48.
  • Handle: RePEc:bla:jacrfn:v:20:y:2008:i:4:p:39-48
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    Cited by:

    1. Sabur Mollah & Omar Al Farooque & Asma Mobarek & Philip Molyneux, 2018. "Bank Corporate Governance and Future Earnings Predictability," Working Papers 2018-09, Swansea University, School of Management.
    2. Robert S. Kaplan & Anette Mikes, 2016. "Risk Management—the Revealing Hand," Harvard Business School Working Papers 16-102, Harvard Business School.
    3. Colletaz, Gilbert & Hurlin, Christophe & Pérignon, Christophe, 2013. "The Risk Map: A new tool for validating risk models," Journal of Banking & Finance, Elsevier, vol. 37(10), pages 3843-3854.
    4. Langkamp, Christian, 2011. "Counterparty credit risk management in industrial corporates," MPRA Paper 34358, University Library of Munich, Germany.
    5. Andersen, Torben G. & Bollerslev, Tim & Christoffersen, Peter F. & Diebold, Francis X., 2013. "Financial Risk Measurement for Financial Risk Management," Handbook of the Economics of Finance, Elsevier.
    6. Stavros Degiannakis & Christos Floros & Alexandra Livada, 2012. "Evaluating value-at-risk models before and after the financial crisis of 2008: International evidence," Managerial Finance, Emerald Group Publishing, vol. 38(4), pages 436-452, March.
    7. Dieter Gramlich & Mikhail V. Oet & Stephen J. Ong, 2013. "Policy in adaptive financial markets—the use of systemic risk early warning tools," Working Paper 1309, Federal Reserve Bank of Cleveland.
    8. Daniel Broby, 2012. "The regulatory evolution of the post credit crisis fund management industry," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 15(1), pages 5-11, March.
    9. René M. Stulz, 2015. "Risk-Taking and Risk Management by Banks," Journal of Applied Corporate Finance, Morgan Stanley, vol. 27(1), pages 8-18, March.
    10. repec:bla:srbeha:v:34:y:2017:i:6:p:728-745 is not listed on IDEAS
    11. repec:rsr:supplm:v:65:y:2017:i:6:p:174-183 is not listed on IDEAS
    12. Frésard, Laurent & Pérignon, Christophe & Wilhelmsson, Anders, 2011. "The pernicious effects of contaminated data in risk management," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2569-2583, October.
    13. repec:rsr:supplm:v:65:y:2017:i:5:p:221-229 is not listed on IDEAS
    14. Barakat, Ahmed & Chernobai, Anna & Wahrenburg, Mark, 2014. "Information asymmetry around operational risk announcements," Journal of Banking & Finance, Elsevier, vol. 48(C), pages 152-179.
    15. Clara-Iulia ZINCA, 2012. "Corporate governance of banks – present and perspectives," Anale. Seria Stiinte Economice. Timisoara, Faculty of Economics, Tibiscus University in Timisoara, vol. 0, pages 278-286, May.
    16. René M. Stulz, 2014. "Governance, Risk Management, and Risk-Taking in Banks," NBER Working Papers 20274, National Bureau of Economic Research, Inc.
    17. Johannes Steinbrecher, 2016. "Corporate Governance und Unternehmenserfolg - Eine empirische Analyse des Zusammenhangs zwischen den Führungs-, Kontroll- und Anreizstrukturen und der Geschäftsentwicklung deutscher Banken," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 64.
    18. Eckhard Hein & Daniel Detzer & Nina Dodig (ed.), 2015. "The Demise of Finance-dominated Capitalism," Books, Edward Elgar Publishing, number 16281.

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