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Tone from the Top in Risk Management: A Complementarity Perspective on How Control Systems Influence Risk Awareness

Author

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  • Braumann, Evelyn
  • Grabner, Isabella
  • Posch, Arthur

Abstract

Prompted by the weaknesses of standardized risk management approaches in the aftermath of the 2008 financial crisis, scholars, regulators, and practitioners alike emphasize the importance of creating a risk-aware culture in organizations. Recent insights highlight the special role of tone from the top as crucial driver of risk awareness. In this study, we take a systems-perspective on control system design to investigate the role of tone from the top in creating risk awareness. In particular, we argue that both interactive and diagnostic use of budgets and performance measures interact with tone from the top in managing risk awareness. Our results show that interactive control strengthens the effect of tone from the top on risk awareness, while tone from the top and diagnostic control are, on average, not interrelated with regard to creating risk awareness. To shed light on the boundary conditions of the proposed interdependencies, we further investigate whether the predicted interdependencies are sensitive to the level of perceived environmental uncertainty. We find that the effect of tone from the top and interactive control becomes significantly stronger in a situation of high perceived environmental uncertainty. Most interestingly, tone from the top and diagnostic control are complements with regard to risk awareness in settings of low perceived environmental uncertainty and substitutes at high levels of perceived environmental uncertainty.

Suggested Citation

  • Braumann, Evelyn & Grabner, Isabella & Posch, Arthur, 2020. "Tone from the Top in Risk Management: A Complementarity Perspective on How Control Systems Influence Risk Awareness," Department for Strategy and Innovation Working Paper Series 03/2020, WU Vienna University of Economics and Business.
    • Handle: RePEc:wiw:wus055:7403
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    Cited by:

    1. Marta Pérez Sigüenza & Laura Rodríguez-León Rodríguez & Juan Manuel Ramon Jeronimo & Raquel Flórez López, 2022. "Management Control Systems and International Entrepreneurship in Small, Young Firms from Resource-Based Theory, Contingence, and Effectuation Approach Perspectives," JRFM, MDPI, vol. 15(8), pages 1-23, August.
    2. Bürgel, Tobias R. & Hiebl, Martin R.W. & Pielsticker, David I., 2023. "Digitalization and entrepreneurial firms' resilience to pandemic crises: Evidence from COVID-19 and the German Mittelstand," Technological Forecasting and Social Change, Elsevier, vol. 186(PA).
    3. Adrian-Cosmin Caraiman, 2020. "Responsibility for Internal Control in Corporate Governance," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 612-618, December.
    4. Ashish Varma & Adnan Khan, 2023. "Simons levers of control disentangled: A quasi-experiment into the competitiveness of hybrid firms," MANAGEMENT CONTROL, FrancoAngeli Editore, vol. 2023(2), pages 19-41.
    5. Yi Zhang & Peng Mao & Hongyang Li & Yuxin Xu & Dan You & Hui Liu & Wei Huang & Jingfeng Yuan, 2020. "Assessing the Safety Risks of Civil Engineering Laboratories Based on Lab Criticity Index: A Case Study in Jiangsu Province," IJERPH, MDPI, vol. 17(17), pages 1-24, August.
    6. Christoph Feichter & Isabella Grabner, 2020. "Empirische Forschung zu Management Control – Ein Überblick und neue Trends [Empirical Management Control Reserach—An Overview and Future Directions]," Schmalenbach Journal of Business Research, Springer, vol. 72(2), pages 149-181, June.
    7. Jacobo Gomez‐Conde & Ernesto Lopez‐Valeiras & Ricardo Malagueño & José Carlos Tiomatsu Oyadomari, 2022. "Quality of performance metrics, informal peer monitoring and goal commitment," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(3), pages 4041-4077, September.

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