IDEAS home Printed from https://ideas.repec.org/a/gam/jmathe/v8y2020i10p1831-d430974.html

Analysis on the Efficiency of Risk Management in the Chinese Listed Companies

Author

Listed:
  • Chien-Ming Huang

    (Department of Banking and Finance, Tamkang University, New Taipei City 251301, Taiwan)

  • Wei Yang

    (School of Business, East China University of Science and Technology, 130 Meilong Road, Shanghai 200237, China)

  • Ren-Qing Zeng

    (Department of International Business, Soochow University, Taipei 111002, Taiwan)

Abstract

Since a firm’s profitability is associated with a degree of risk taking, risk indicators have been extensively treated as exogenous variables and affected firm performance. The level of risk taking should be determined through internal control quality and firm-specific characteristics to effectively understand the relationship between risk management and firm performance. This study aims to investigate the effects of risk management efficiency on the production efficiency of Chinese listed companies from 2002 to 2016 using the two-step data envelopment analysis (DEA) approach. Empirical results indicate that risk management differs from traditional financial theory, which means that high-level risk would earn high expected returns. Firms with a low efficiency index of enterprises risk management will have low performance. In particular, internal controls were significantly improved after the 2008 financial crisis. Our overall results also suggest that information asymmetry is still a problem in financial markets. To achieve maximum benefits for shareholders and improve the quality of information disclosure, methods for enacting market regulations are still very important issues in China.

Suggested Citation

  • Chien-Ming Huang & Wei Yang & Ren-Qing Zeng, 2020. "Analysis on the Efficiency of Risk Management in the Chinese Listed Companies," Mathematics, MDPI, vol. 8(10), pages 1-13, October.
    • Handle: RePEc:gam:jmathe:v:8:y:2020:i:10:p:1831-:d:430974
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-7390/8/10/1831/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2227-7390/8/10/1831/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Shiuh-Nan Hwang & Tong-Liang Kao, 2008. "Using two-stage DEA to measure managerial efficiency change of non-life insurance companies in Taiwan," International Journal of Management and Decision Making, Inderscience Enterprises Ltd, vol. 9(4), pages 377-401.
    2. Ryan Baxter & Jean C. Bedard & Rani Hoitash & Ari Yezegel, 2013. "Enterprise Risk Management Program Quality: Determinants, Value Relevance, and the Financial Crisis," Contemporary Accounting Research, John Wiley & Sons, vol. 30(4), pages 1264-1295, December.
    3. Gordon, Lawrence A. & Loeb, Martin P. & Tseng, Chih-Yang, 2009. "Enterprise risk management and firm performance: A contingency perspective," Journal of Accounting and Public Policy, Elsevier, vol. 28(4), pages 301-327, July.
    4. Brian W. Nocco & René M. Stulz, 2006. "Enterprise Risk Management: Theory and Practice," Journal of Applied Corporate Finance, Morgan Stanley, vol. 18(4), pages 8-20, September.
    5. repec:ack:journl:y::id:50 is not listed on IDEAS
    6. Editorial Article, 0. "The Information for Authors," Economics of Contemporary Russia, Regional Public Organization for Assistance to the Development of Institutions of the Department of Economics of the Russian Academy of Sciences, issue 2.
    7. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    8. Barth, James R. & Lin, Chen & Ma, Yue & Seade, Jesús & Song, Frank M., 2013. "Do bank regulation, supervision and monitoring enhance or impede bank efficiency?," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2879-2892.
    9. repec:ack:journl:y::id:144 is not listed on IDEAS
    10. Ali, Searat & Liu, Benjamin & Su, Jen Je, 2018. "Does corporate governance quality affect default risk? The role of growth opportunities and stock liquidity," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 422-448.
    11. Kekoura Sakouvogui & Saleem Shaik, 2020. "Impact of financial liquidity and solvency on cost efficiency: evidence from US banking system," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 37(2), pages 391-410, April.
    12. Xiaohui Wu & Hui Li, 2015. "Board independence and the quality of board monitoring: evidence from China," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 11(3), pages 308-328, June.
    13. Ta‐Cheng Chang & Yung‐Ho Chiu, 2006. "Affecting Factors On Risk‐Adjusted Efficiency In Taiwan'S Banking Industry," Contemporary Economic Policy, Western Economic Association International, vol. 24(4), pages 634-648, October.
    14. repec:ack:journl:y::id:108 is not listed on IDEAS
    15. L. Lee Colquitt & Robert E. Hoyt & Ryan B. Lee, 1999. "Integrated Risk Management and the Role of the Risk Manager," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 2(3), pages 43-61, September.
    16. Satish Sharma & Mikhail Shebalkov & Andrey Yukhanaev, 2016. "Evaluating banks performance using key financial indicators – a quantitative modeling of Russian banks," Journal of Developing Areas, Tennessee State University, College of Business, vol. 50(1), pages 425-453, January-M.
    17. Dongwei Su & Xingxing He, 2012. "Ownership structure, corporate governance and productive efficiency in China," Journal of Productivity Analysis, Springer, vol. 38(3), pages 303-318, December.
    18. Martin F. Grace & J. Tyler Leverty & Richard D. Phillips & Prakash Shimpi, 2015. "The Value of Investing in Enterprise Risk Management," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 82(2), pages 289-316, June.
    19. André P. Liebenberg & Robert E. Hoyt, 2003. "The Determinants of Enterprise Risk Management: Evidence From the Appointment of Chief Risk Officers," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 6(1), pages 37-52, February.
    20. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, vol. 30(9), pages 1078-1092, September.
    21. Kun Su & Liuchuang Li & Rui Wan, 2017. "Ultimate ownership, risk-taking and firm value: evidence from China," Asia Pacific Business Review, Taylor & Francis Journals, vol. 23(1), pages 10-26, January.
    22. McConnell, John J. & Servaes, Henri, 1990. "Additional evidence on equity ownership and corporate value," Journal of Financial Economics, Elsevier, vol. 27(2), pages 595-612, October.
    23. Huang, Ying Sophie & Wang, Chia-Jane, 2015. "Corporate governance and risk-taking of Chinese firms: The role of board size," International Review of Economics & Finance, Elsevier, vol. 37(C), pages 96-113.
    24. Beasley, Mark S. & Clune, Richard & Hermanson, Dana R., 2005. "Enterprise risk management: An empirical analysis of factors associated with the extent of implementation," Journal of Accounting and Public Policy, Elsevier, vol. 24(6), pages 521-531.
    25. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
    26. Robert E. Hoyt & Andre P. Liebenberg, 2011. "The Value of Enterprise Risk Management," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 78(4), pages 795-822, December.
    27. repec:ack:journl:y::id:220 is not listed on IDEAS
    28. Al-Amri, Khalid & Davydov, Yevgeniy, 2016. "Testing the effectiveness of ERM: Evidence from operational losses," Journal of Economics and Business, Elsevier, vol. 87(C), pages 70-82.
    29. repec:ack:journl:y::id:91 is not listed on IDEAS
    30. Ta-Cheng Chang & Yun-Chia Yan & Li-Chuan Chou, 2013. "Is default probability associated with corporate social responsibility?," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 20(4), pages 457-472, December.
    31. Editorial Article, 0. "The Information for Authors," Economics of Contemporary Russia, Regional Public Organization for Assistance to the Development of Institutions of the Department of Economics of the Russian Academy of Sciences, issue 1.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhong Fang & Ying Chen & Lingyi Chen & Yung-ho Chiu, 2025. "Bank efficiency estimation considering enterprise risk: entropy meta two parallel three-stage dynamic DDF model," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 12(1), pages 1-20, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Therese R. Viscelli & Mark S. Beasley & Dana R. Hermanson, 2016. "Research Insights About Risk Governance," SAGE Open, , vol. 6(4), pages 21582440166, November.
    2. Malik, Muhammad Farhan & Zaman, Mahbub & Buckby, Sherrena, 2020. "Enterprise risk management and firm performance: Role of the risk committee," Journal of Contemporary Accounting and Economics, Elsevier, vol. 16(1).
    3. Chen, Yu-Lun & Chuang, Yi-Wei & Huang, Hong-Gia & Shih, Jhuan-Yu, 2020. "The value of implementing enterprise risk management: Evidence from Taiwan’s financial industry," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    4. Naciye Sekerci & Don Pagach, 2020. "Firm Ownership and Enterprise Risk Management Implementation: Evidence from the Nordic Region," JRFM, MDPI, vol. 13(9), pages 1-21, September.
    5. Rami Shaheen & Mehmet Ağa & Husam Rjoub & Ahmad Abualrub, 2020. "Investigation of the Pillars of Sustainability Risk Management as an Extension of Enterprise Risk Management on Palestinian Insurance Firms’ Profitability," Sustainability, MDPI, vol. 12(11), pages 1-20, June.
    6. Florio, Cristina & Leoni, Giulia, 2017. "Enterprise risk management and firm performance: The Italian case," The British Accounting Review, Elsevier, vol. 49(1), pages 56-74.
    7. Han, Xu & Laing, Elaine, 2025. "Enterprise risk management and foreign currency derivatives usage," International Review of Economics & Finance, Elsevier, vol. 103(C).
    8. Danijela Miloš Sprčić & Marina Mešin Žagar & Željko Šević & Mojca Marc, 2016. "Does enterprise risk management influence market value – A long-term perspective," Risk Management, Palgrave Macmillan, vol. 18(2), pages 65-88, August.
    9. José Ruiz-Canela López, 2021. "How Can Enterprise Risk Management Help in Evaluating the Operational Risks for a Telecommunications Company?," JRFM, MDPI, vol. 14(3), pages 1-26, March.
    10. Muhammed Altuntas & Thomas R. Berry-Stölzle & J. David Cummins, 2021. "Enterprise risk management and economies of scale and scope: evidence from the German insurance industry," Annals of Operations Research, Springer, vol. 299(1), pages 811-845, April.
    11. ŞENOL, Zekai & KARACA, Süleyman Serdar, 2017. "The Effect Of Enterprise Risk Management On Firm Performance: A Case Study On Turkey," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 21(2), pages 6-30.
    12. Mónica Hernández-Madrigal & Cristina Aibar-Guzmán & Beatriz Aibar-Guzmán & Élfego Ramírez-Flores, 2020. "Are external pressures always behind ERM implementation? Evidence from Spanish listed firms," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 17(2), pages 86-100, September.
    13. Ishaya John Dabari & Siti Zabedah Saidin, 2015. "Determinants Influencing the Implementation of Enterprise Risk Management in the Nigerian Banking Sector," International Journal of Asian Social Science, Asian Economic and Social Society, vol. 5(12), pages 740-754, December.
    14. Nadine Gatzert & Michael Martin, 2015. "Determinants and Value of Enterprise Risk Management: Empirical Evidence From the Literature," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 18(1), pages 29-53, March.
    15. Elisabetta Mafrolla & Felice Matozza, 2014. "Risk management and firm size: a survey of Italian private companies," MANAGEMENT CONTROL, FrancoAngeli Editore, vol. 2014(3), pages 87-108.
    16. Heidinger, Dinah & Gatzert, Nadine, 2018. "Awareness, determinants and value of reputation risk management: Empirical evidence from the banking and insurance industry," Journal of Banking & Finance, Elsevier, vol. 91(C), pages 106-118.
    17. Evan M. Eastman & Jianren Xu, 2021. "Market reactions to enterprise risk management adoption, incorporation by rating agencies, and ORSA Act passage," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 24(2), pages 151-180, June.
    18. Fung, Derrick W.H. & Lee, Wing Yan & Yang, Charles C., 2025. "Surviving the storm: Evaluating the role of enterprise risk management in property and liability insurers' performance during the COVID-19 pandemic," Journal of Corporate Finance, Elsevier, vol. 91(C).
    19. Johnston, Joseph & Soileau, Jared, 2020. "Enterprise risk management and accruals estimation error," Journal of Contemporary Accounting and Economics, Elsevier, vol. 16(3).
    20. Eckles, David L. & Hoyt, Robert E. & Miller, Steve M., 2014. "Reprint of: The impact of enterprise risk management on the marginal cost of reducing risk: Evidence from the insurance industry," Journal of Banking & Finance, Elsevier, vol. 49(C), pages 409-423.

    More about this item

    Keywords

    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jmathe:v:8:y:2020:i:10:p:1831-:d:430974. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager The email address of this maintainer does not seem to be valid anymore. Please ask MDPI Indexing Manager to update the entry or send us the correct address (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.