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ENTERPRISE RISK MANAGEMENT - ANALYTICAL FRAMEWORK FOR RISK ASSESSMENT

S. F. Burta, A. C. Nicolescu

Abstract

The purpose of the present paper is to assess the relevance of several notoriously applied financial indicators to construct an appropriate risk evaluation structure for enterprises. The authors aim to include in the empirical study a wide array of variables, grouped into clusters, to match the complexity implied by the data collected from 100 Nasdaq quoted companies, based in 9 countries, from 8 industries. The methodology employed is the Principal Component Analysis, which supports in capturing the most significant information conveyed by the several clusters of financial indexes and ratios. The relevance of our data sample is confirmed by the Kaiser-Meyer-Olkin measurement of sample adequacy. The results of our study, encompassing 100 global enterprises, display a feasible evaluation structure that includes assessment for four risk scenarios: profitability risk, liquidity risk, return on equity risk and return on assets and volatility risk. Our empirical study ensures the coverage of several risk scenarios and the principal variables define multiple risk taxonomies, sources and causes therefore incorporating potential expectations from the stakeholders and stockholders. The resulting analytical framework brings added value to present theory and, more importantly to practitioners, who can employ the proposed risk assessment outline and benchmark values from internal, historical values or external values of competitors or overall industry averages.

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DOI resolver: doi.org/10.5593/sgemsocial2019V/1.1/S03.030

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