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Impediments to Communication in Financial Institutions: Implications for the Risk Management Organization

Author

Listed:
  • Dirk Höring

    (International Center for Insurance Regulation)

  • Helmut Gründl

    (Goethe-University Frankfurt)

  • Sebastian Schlütter

    (University of Applied Sciences Mainz)

Abstract

This article investigates the question of how risk management should be embedded in a financial firm’s hierarchy. We answer this question by combining capital market theory with game-theoretic thinking. We develop a theory for the integration of risk management into an organization, based on private information and differences in preferences. Our model compares the payoffs from uninformed decision-making, solo decision-making, joint voting decision-making, and coordinated decision-making when information about a project’s expected return and risk is dispersed in the organization. Our findings have a number of implications for the organization of risk management.

Suggested Citation

  • Dirk Höring & Helmut Gründl & Sebastian Schlütter, 2016. "Impediments to Communication in Financial Institutions: Implications for the Risk Management Organization," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 41(2), pages 193-224, September.
    • Handle: RePEc:kap:geneva:v:41:y:2016:i:2:d:10.1057_s10713-016-0015-y
    DOI: 10.1057/s10713-016-0015-y
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