Introduction

Citation

Krause, A. (2006), "Introduction", Managerial Finance, Vol. 32 No. 9. https://doi.org/10.1108/mf.2006.00932iaa.001

Introduction

Over the last couple of years, risk management has gained an ever increasing prominence in the finance literature with attention being paid by academics, practitioners and regulators alike. Although the vast majority of research and regulation focuses on the financial sector, particularly in light of the new Basle Accord on Capital Adequacy for banks, there have also been some attempts to increase the awareness of risk management in non-financial firms, such as the Turnbull Report in Great Britain and some voluntary codes of practice.

Notwithstanding such attempts the level of understanding in non-financial firms is in most cases very partial, a coherent thinking about risk management is deficient and priorities are clearly set on other aspects. While there are many readily accessible books on the principles of good risk management available to readers of all backgrounds, their contents often focuses on the financial sector and is in many instances not easily transferable outside the sector.

This special edition on risk management seeks to introduce the reader to some aspects of risk management that has not received much prominence in the literature, particularly for non-financial firms. The first article by Renate Schubert addresses the fact that men and women have different abilities in analyzing and managing risk; it is argued that men have a superior ability to conduct risk analysis and women to carry out integrated risk management and communication. By combining the strengths of both genders companies could seek to optimize the firm value.

The next article by Thomas Breuer addresses the question of choosing an appropriate risk measure to capture some of the most extreme situations, worst case scenarios. His main finding is that the recently popular value at risk may give very misleading results. By evaluating extreme scenarios he shows how maximum loss can be used as a risk measure to optimize a portfolio of holdings. Although he uses examples from financial markets, the relevance of the described method for non-financial firms is immediately obvious.

The next two articles deal with relatively new tools for risk management. Andreas Jobst investigates the use of securitisation for SMEs by providing a very detailed introduction to the process of securitisation and providing an example of an institutional framework in Germany. Credit derivatives are a relatively new risk management tool, currently seldom used outside the financial sector. Paul Cox, Mark Freeman and Brian Wright explore the use of these new instruments for non-financial firms. With carefully selected examples they show how such companies can make use of credit derivatives.

The final paper by Andreas Krause addresses the problem of capital requirements for non-financial companies, a problem usually only discussed for banks and insurance companies. He points out that non-financial companies should conduct a similar analysis to banks and argues that the amount of capital required also depends on the structure of assets of a company and cannot be investigated in isolation.

Overall the contributions to this special issue cover a broad range of topics which deserve more attention by managers as well as researchers. In most cases no definitive answers to the addressed problem are given, but they serve rather as a stimulant for further research. In this sense it is hoped that the reader obtains a few ideas about issues in risk management he has thus far either ignored as irrelevant or not been aware of.

Andreas KrauseGuest Editor