The Impact of Chief Risk Officer Appointments on Firm Risk and Operational Efficiency

Li, Huashan, Lam, Hugo KS ORCID: 0000-0002-4674-6145, Ho, William and Yeung, Andy CL
(2022) The Impact of Chief Risk Officer Appointments on Firm Risk and Operational Efficiency. Journal of Operations Management, 68 (3). pp. 241-269.

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To exercise risk control at the corporate level, firms often appoint Chief Risk Officers (CROs) to their top management team. By establishing CRO positions, firms can reduce firm risk and potential financial losses caused by operational disruptions. Yet, by inducing stringent control measures on risks, security, and compliance, CRO appointments might create unwieldy bureaucracies with operational hurdles and incur burdensome costs that offset efficiency. Using longitudinal secondary data collected from multiple sources, we analyze the impact of CRO appointments on firm risk and operational efficiency of 435 publicly listed firms in the U.S. from 2006 to 2016. Our results indicate that CRO appointments not only reduce risks, but also improve efficiency in operations. We delve into the power of CROs and find that more powerful CROs are more effective in enhancing the operational efficiency of firms. We further examine the contextual factors and reveal that firms operating under high industry litigation threats and industry dynamism improve operational efficiency to a greater extent after CRO appointments. Overall, CROs’ appointments are more beneficial to firms when they have stronger power in the top management team and when the operating environments are uncertain and volatile.

Item Type: Article
Uncontrolled Keywords: chief risk officers, firm risk, industry dynamism, industry litigation threat, operational efficiency, power
Divisions: Faculty of Humanities and Social Sciences > School of Management
Depositing User: Symplectic Admin
Date Deposited: 20 Jan 2022 08:18
Last Modified: 16 Mar 2024 02:30
DOI: 10.1002/joom.1175
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