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Study finds drop in share price linked to ineffective risk management

The loss of hundreds of millions of dollars in shareholder value during the past 10 years might have been mitigated substantially if some organizations approached risk management differently, according to a new study by Deloitte & Touche, the US professional services firm.

The study, "Disarming the Value Killers. A Risk Management Study," reveals that sudden and dramatic drops in share price may often be the result of a failure to monitor and manage the interaction of diverse sources of risk.

Specifically, Deloitte & Touche examined the 10-year stock performance of 1000 of the world's largest companies in 2003. Almost one-half of the companies studied suffered declines in share prices of more than 20% in a one-month period, relative to the Morgan Stanley Capital International World Index, the study revealed. By the end of 2003, approximately one-quarter of these companies had still not recovered their lost market value. And, another quarter of the companies needed more than a year for their share prices to recover.

  • Only 37 companies apparently suffered stock losses due primarily to financial risk, which is less than half the number of companies that sustained losses due to strategic, external and operational risks.

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