Skip to main content
SpringerLink
Log in

Risk management by US and Canadian financial firms during the financial crisis

  • Original Article
  • Published:
International Journal of Disclosure and Governance Aims and scope Submit manuscript

Abstract

The objectives are to examine the impact of the 2008 financial crisis on enterprise risk management (ERM) disclosures in US and Canadian financial firms, and to compare risk management between these two financial sectors. ERM disclosures were examined through a content analysis of the 2007 and 2008 annual reports. The number of risk disclosures increased only slightly from 2007 to 2008. When the levels of risk exposure, risk consequences and risk management were examined, the only change was the reporting of higher risk consequences from 2007 to 2008 by US companies. Canadian companies reported higher levels of risk exposure and risk consequences only for liquidity risk. While there were similarities in the disclosure of risks in the financial category, the US financial sector firms disclosed higher levels of risk exposure but managed these risks more passively, whereas the Canadian firms reported higher levels of risk consequences and managed these risks more actively. Firms in the financial sector have not been inclined to disclose more information about their risk management strategies, despite the importance of risk management in their business model. This information asymmetry has potential for significant costs to investors and society in general. A study comparing the US and Canadian financial sectors has not been done previously. Given the origins of the financial crisis in the US and the relatively stable Canadian financial sector, this study is overdue.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Aabo, T., J. Fraser, and B. Simkins. 2005. The rise and evolution of the chief risk officer: enterprise risk management at Hydro One. Journal of Applied Corporate Finance 17(3): 62–75.

    Article  Google Scholar 

  • American Institute of Certified Public Accountants (AICPA) and Canadian Institute of Chartered Accountants (CICA). 1999. Managing Risk in the New Economy. Toronto: CICA.

    Google Scholar 

  • Beasley, M., and M.L. Price. 2010. ERM and its role in strategic planning and strategy execution. In Enterprise Risk Management, ed. J. Fraser and B. Simkins. New York: Wiley.

    Google Scholar 

  • Beasley, M., R. Clune, and D. Hermanson. 2005. Enterprise risk management: An empirical analysis of factors associated with the extent of implementation. Journal of Accounting and Public Policy 24(6): 521–531.

    Article  Google Scholar 

  • Beasley, M., D. Pagach, and R. Warr. 2008. The information conveyed in hiring announcements of senior executives overseeing enterprise-wide risk management processes. Journal of Accounting, Auditing and Finance 23(3): 311–332.

    Article  Google Scholar 

  • Beretta, S., and S. Bozzolan. 2004. A framework for the analysis of firm risk communication. The International Journal of Accounting 39(3): 265–288.

    Article  Google Scholar 

  • Bordo, M. 2008. An historical perspective on the crisis 2007–2008. National Bureau of Economic Research, Working Paper 14569, Cambridge, MA.

  • Caldwell, J.E. 2012. A framework for board oversight on enterprise risk. Toronto: CICA.

    Google Scholar 

  • Casualty Actuarial Society (CAS). 2003. Overview of enterprise risk management. Arlington: Casualty Actuarial Society, Enterprise Risk Management Committee.

    Google Scholar 

  • Caruana, J. 2017. Lessons learned from global financial crisis-and risks that remain. Barcelona: IESE Business School, University of Navarra.

    Google Scholar 

  • Committee of Sponsoring Organizations (COSO) of the Treadway Commission. 2004. Enterprise risk management—integrated framework. Durham: American Institute of Certified Public Accountants.

    Google Scholar 

  • Dia, M., and D. Zéghal. 2008. Fuzzy evaluation of risk management profiles disclosed in corporate annual reports. Canadian Journal of Administrative Sciences 25(3): 237–254.

    Article  Google Scholar 

  • Dionne, G. 2009. Structured finance, risk management and the recent financial crisis. Ivey Business Journal 73(6): 1–4.

    Google Scholar 

  • Fabozzi, F.J., and P.P. Drake. 2009. Finance, capital markets, financial management, and investment management. Hoboken, NJ: Wiley.

    Book  Google Scholar 

  • Financial Post. 2018. Canada among three economies in world most at risk of banking crisis, BIS Warns, March 12.

  • Greenwood, J. 2013. Big Six Banks too big to fail, regulator says. The Ottawa Citizen, section D, March 27.

  • Institute of Internal Auditors (IIA). 2002. Recommendations for improving corporate governance. Altamonte Springs, FL: IIA.

    Google Scholar 

  • Kajuter, P. 2001. Internal control and risk reporting: A comparative study of the regulations and disclosure practices in the U.S., U.K. and Germany. Paper presented at the 24th Annual Conference of European Accounting Association; Athens.

  • Keefe, B.W., and S.S. Sodhi. 2011. Banking regulation 2011: Canada. London: Law Business Research Ltd.

    Google Scholar 

  • Kleffner, A., R. Lee, and B. McGannon. 2003. The effect of corporate governance on the use of enterprise risk management: Evidence from Canada. Risk Management and Insurance Review 6(1): 53–73.

    Article  Google Scholar 

  • Lajili, K., and D. Zéghal. 2005. A content analysis of risk management disclosures in Canadian annual reports. Canadian Journal of Administrative Sciences 22(2): 125–142.

    Article  Google Scholar 

  • Lam, J. 2006. Emerging best practices in developing key risk indicators and ERM reporting. Boston, MA: James Lam and Associates Inc.

    Google Scholar 

  • Lamm-Tennant, J., and D. Lightfoot. 2010. Creating value by integrating risk management with capital management and overall business strategy. http://www.gccapitalideas.com/2010/10/01.

  • Linsley, P.M., and P.J. Shrives. 2000. Risk management and reporting risk in the U.K. Journal of Risk 3(1): 115–129.

    Article  Google Scholar 

  • Linsmeier, T.J., D.B. Thornton, M. Venkatachalam, and M. Walker. 2002. The effect of mandated market risk disclosures on trading volume sensitivity to interest rate, exchange rate and commodity price movement. Accounting Review 77(2): 343–377.

    Article  Google Scholar 

  • Maingot, M., T. Quon, and D. Zéghal. 2014. An analysis of the effects of the financial crisis on enterprise risk management in the Canadian financial sector. Journal of Finance and Risk Perspectives 3(2): 10–26.

    Google Scholar 

  • McLean, B., and J. Nocera. 2010. All the devils are here: The hidden history of the financial crisis. Portfolio: Penguin.

    Google Scholar 

  • Milne, M.J., and R.W. Adler. 1999. Exploring the reliability of social and environmental disclosures content analysis. Accounting, Auditing and Accountability Journal 2(2): 237–256.

    Article  Google Scholar 

  • Mishkin, F.S. 2010. Over the cliff: From the subprime to the global financial crisis. National Bureau of Economic Research, Working Paper 16609, Cambridge, MA. http://www.nber.org/papers/w16609.

  • Nocco, B.W., and M. Stulz. 2006. Enterprise risk management: Theory and practice. Journal of Applied Corporate Finance 18(4): 1–13.

    Article  Google Scholar 

  • Oliver, J. 2018. Should the U.S. ease regulation on its big banks. Financial Times, March 6.

  • OSFI. 2011. OSFI and the Canadian financial system. Ottawa, ON: Office of the Superintendent of Financial Institutions.

    Google Scholar 

  • Pagach, D., and R. Warr. 2011. The characteristics of firms that hire chief risk officers. The Journal of Risk and Insurance 78(1): 185–211.

    Article  Google Scholar 

  • Price Waterhouse Coopers. 2009. Extending enterprise risk management (ERM) to address emerging risks. London: Price Waterhouse Coopers.

    Google Scholar 

  • Protiviti. 2007. Survey of C-level executives with the nation’s largest companies. Menlo Park: Protiviti Inc.

    Google Scholar 

  • Roulstone, D.T. 1999. Effect of SEC financial reporting release No. 48 on derivative and market risk disclosures. Accounting Horizons 13(4): 343–363.

    Article  Google Scholar 

  • Shecter, B., and T. Tedesco. 2014. Tensions rising in bank boardrooms as OSFI’s new rules blur boundaries. Financial Post, October 4.

  • Sobel, P.J., and K.F. Reding. 2004. Aligning corporate governance with risk management. Management Accounting Quarterly 5(2): 1–9.

    Google Scholar 

  • Stiglitz, J. 2010. Lessons from the Global Financial Crisis of 2008. Seoul Journal of Economics 23(3): 319–339.

    Google Scholar 

  • Stock, R. 2018. Ann Pettifor predicted the global financial crisis - now she is predicting the sequel. https://www.stuff.co.nz/business/money/102939290/.

  • Sullivan, M. 2012. Risk governance: A foundation for effective risk management. Accountancy Ireland 44(1): 44–46.

    Google Scholar 

  • Teslik, L.H. 2008. The U.S. Financial Regulatory System. Global Economy in Crisis, October 1.

  • Thornton, D.B. 1983. The financial reporting of contingencies and uncertainties: theory and practice. Certified General Accountants’ Research Foundation, Research Monograph #5.

  • Perrin, Tillinghast-Towers. 2004. Adding value through risk and capital management. New York, NY: Tillinghast-Towers Perrin.

    Google Scholar 

  • Venkatachalam, M. 1996. Value relevance of banks’ derivatives disclosures. Journal of Accounting and Economics 22(1): 327–355.

    Article  Google Scholar 

  • Walker, P.L., W.G. Shenkir, and T.L. Barton. 2002. Enterprise risk management: Putting it all together. Altamonte Springs, FL: Institute of Internal Auditors Research Foundation.

    Google Scholar 

  • Wray, L.R. 2011. Lessons we should have learned from the global financial crisis but didn’t. Working Paper No. 681, Levy Economics Institute of Bard College.

  • Zéghal, D., and S.A. Ahmed. 1990. Comparison of social responsibility information disclosure media by Canadian firms. Accounting, Auditing and Accountability Journal 3(1): 38–53.

    Article  Google Scholar 

  • Zéghal, D., and P. Faulkner. 2006. Enterprise risk management—don’t risk not adopting it. Enterprise risk management: rethinking risk in the 21st century. CGA Accounting Research Centre University of Ottawa 2006: 101–119.

    Google Scholar 

  • Zéghal, D., and M. El Aoun. 2016. The effect of the 2007/2008 financial crisis on enterprise risk management disclosure of top U.S. banks. Journal of Modern Accounting and Auditing 12(1): 28–51.

    Google Scholar 

Download references

Acknowledgements

We acknowledge funding for this project from the Telfer School of Management Research Fund and the CPA Canada—Accounting and Governance Research Centre.

Author information

Authors and Affiliations

  1. Telfer School of Management, University of Ottawa, 55 Laurier East, Ottawa, ON, K1N 6N5, Canada

    Michael Maingot, Tony Quon & Daniel Zéghal

Authors
  1. Michael Maingot
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Tony Quon
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Daniel Zéghal
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Tony Quon.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Maingot, M., Quon, T. & Zéghal, D. Risk management by US and Canadian financial firms during the financial crisis. Int J Discl Gov 15, 221–234 (2018). https://doi.org/10.1057/s41310-018-0049-8

Download citation

  • Received:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1057/s41310-018-0049-8

Keywords

Search

Navigation