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HOW DOES CORPORATE RISK MANAGEMENT REDUCE THE CONSEQUENCES OF SHORT-TERMISM?
Abstract
Short termism is one of the most relevant problems of corporate governance. Managers of companies have to make a choice between long term and short term decisions. The main reasons provoking the emergence of short-termism are: the high volatility of the economy as a whole, the high level of uncertainty of business development due to systematic risks, the legislatively conditioned necessity of publishing interim financial statements and the desire of business owners to get a return on investment as quickly as possible. We assume that corporate risk management system would contribute to mitigate short-termism problem in particular by examining the impact of corporate risk management on the discount rate. In this paper author provide a methodology of estimation of discount rate, depending on the degree of effectiveness of the risk management. The provided methodology mitigates uncertainty of strategic decisions and allows making long-term decisions. The core of proposal was built under the assumption that stakeholders have their own opinion about sustainability of a company and use a special list of signs, demonstrating the risk management efficiency of a company.
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