Elixir or delusion: General systems risk management and A‐REIT entity performance

Abstract

Purpose

The purpose of this paper is to develop a General Systems Theory (GST) risk management framework and conducts a preliminary investigation into its potential benefits.

Design/methodology/approach

A risk management framework with four domains is developed by applying GST to property. Risk management in five listed Australian Real Estate Investment Trusts (A‐REITs) is benchmarked against the GST ideal using public web‐sites information. A‐REIT volatility‐adjusted returns are calculated using Treynor ratios for the year to May 2010. The link between risk management score and entity performance is then investigated.

Findings

The GST framework directs attention to risks involving surveillance, capacity and controls. However, as predicted by the Efficient Market Hypothesis (EMH), the study found no link between assessed risk management and volatility‐moderated annual returns to May 2010.

Research limitations/implications

The risk scoring was predicated on publicly available data, with limited analysis of financial statements. The sample size was restricted.

Practical implications

Successful entities are well governed, focused and innovative. Robust finances allow exploitation of emerging opportunity when business conditions become favourable. Planning and environmental management capabilities are essential.

Originality/value

The paper makes conceptual and practical contributions. Conceptually, it develops a GST risk management framework. Practically, albeit for a handful of entities, the paper illustrates how the GST approach to risk management could be effectively deployed. The paper also outlines a pathway for more refined risk management research.

Citation

Huston, S., Warren, C. and Elliott, P. (2011), "Elixir or delusion: General systems risk management and A‐REIT entity performance", Journal of Property Investment & Finance, Vol. 29 No. 1, pp. 49-58. https://doi.org/10.1108/14635781111100191