Corporate Risk Management Disclosure and Corporate Sustainability: The Role of Diversification

By Hashim, Fathyah; Koon, Lee Tian | Global Business and Management Research: An International Journal, October 15, 2017 | Go to article overview

Corporate Risk Management Disclosure and Corporate Sustainability: The Role of Diversification


Hashim, Fathyah, Koon, Lee Tian, Global Business and Management Research: An International Journal


Introduction

Following the business scandals and corporate failures which occurred in the past few years, works to rebuild public trust in business and in the financial markets have been discussed extensively both in practice and academia. Many current studies in corporate governance have focused on those issues, including corporate fraud, the abuse of managerial power and business social irresponsibility. In response to the changing market, business is being forced to take externalities into account in management behaviour. Corporate social responsibility and ethics are thus becoming a vital part of staying competitive, partly because they help to retain talented staff and to satisfy customers' expectation (Gardiner, Rubbens & Bonfinglioli, 2003).

At the same time, the changing economic and regulatory environment, increasingly complex global business structures, a growing reliance on financial instruments and international transactions, as well as prominent corporate crises gave rise to risk reporting in non-financial indicators. However, many of the existing mandatory structures require just a minimal disclosure of quantifies risk information. Shareholders are putting increasing pressure on corporations to focus on a more sustainable agenda because ignoring the potential risks would be fiscally irresponsible. They continue to call for better, more measurable information that will give them the means of assessing material risk factors arising from intangible factors (Simpson, 2012).

Despite recent increased risk research attention on the international scene, there are few Malaysian research studies that specifically address risk management disclosure (e.g. Amran, Abdul Manaf & Che Haat, 2008). As part of good corporate governance, risk management information is expected to be increasingly sought by stakeholders and information users in general, to elicit potentially relevant information that might be intentionally withheld by management for strategic purposes (Lajili & Zeghal, 2005). This would help identify potential managerial problems (and opportunities) and assess management's effectiveness in dealing with business uncertainties and opportunities.

The collapse of several Malaysian companies listed on the Bursa Malaysia, or the former Kuala Lumpur Stock Exchange (KLSE), can be at least partially attributed to poor corporate governance, weak investor relations, low levels of transparency, and the ineffectiveness of regulatory agencies in enforcing legislation aimed at protecting minority shareholders (Mohamad, 2002). Higher market performance is a consequence of greater transparency (Amran et al., 2008). Hence, risk management information is expected to be increasingly sought after by stakeholders and information users in general, even information intentionally withheld by management for strategic purposes (Lajili, & Zeghal, 2005). This trend will help identify potential managerial problems and lend tools to assess management's effectiveness in dealing with business uncertainties and opportunities, leading to better corporate sustainability.

Corporate sustainability is a positive multi-faceted concept covering areas of environmental protection, social equity, community friendship and sustainable development in corporate governance. Corporate sustainability is generally defined as a business approach that creates long term shareholder value by embracing opportunities and managing risk from three dimensions: economic, environmental and social dimensions (Dow Jones Sustainability Indexes). A sustainable company is one whose characteristics and actions are designed to lead to a "sustainable future state" (Funk, 2003).

Malaysia is a unique country with a diverse racial, ethnic and religious mix, coupled with booming economic growth. Its economic resilience, demonstrated in both the 1997 South East Asian economic crisis and the recent global financial turmoil, has attracted many international investors. …

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