Corporate Risk Management

Conclusion

We have presented more than twenty subjects related to risk management. Several issues have not been covered in depth. In this short conclusion, we raise some important open questions to stimulate future research, teaching, and management.

Risk management is evolving at an accelerated pace to adapt to permanent changes in risks. For example, liquidity risk was not really considered before the last financial crisis. The first empirical result that caught researchers' attention is the fact that default risk represents only a fraction of the spread between corporate and government bonds. Several studies have now shown that liquidity risk partly explains residual spreads. This risk played a significant role in the last financial crisis and in the following years. Consequently, Basel III introduced a regulatory capital requirement to reduce the effects of liquidity risk on banks' financial health. Managing this risk is a formidable challenge and very few theoretical publications have examined this subject. The very definition of liquidity risk remains vague.

Integrated risk management is still very fragmented. Several firms' annual reports describe the implementation of an integrated risk management model. Organizational charts are quite stylized, but often superficial, because risks continue to be managed in silos. Very few banks consider correlations between market, default, and liquidity risk of the assets contained in their portfolios. This may be explained by the ...