It sounds rather simplistic – but high risk value is salubrious for your company’s economic health
At least that's according to the findings detailed in 'Improving Risk Quality to Drive Value,' a study conducted by Oxford Metrica, an independent, internationally-recognised, strategic advisory firm.
The findings reveal that companies with high risk quality have low cash flow volatility, a core value driver. Additionally, the study concludes that risk quality is a strategic issue and a key characteristic of a value-creating firm, as well as an essential aspect of effective corporate governance procedures.
"These findings provide evidence for what is intuitively understood by corporate executives but, to-date, has not been demonstrated quantitatively - that improving risk quality is a key driver of sustained shareholder value," says Dr. Deborah Pretty, principal, Oxford Metrica.
"Investment in improving risk quality to minimise the probability and severity of losses is fundamental to good corporate governance," states Ruud Bosman, executive vice president, FM Global, a commercial and industrial property insurance organisation. "To sustain shareholder confidence and value, it is critical to strike the optimal balance between risk and reward by fully understanding the underlying risks to one's business.
The study was conducted using 438 publicly quoted companies across a broad range of industries.