Effects of credit rating change on risk-taking

This thesis investigates whether there are changes in risk-taking behavior following an upgrade or downgrade in credit ratings. Research on effects of rating changes on capital markets is well-documented but the literature on how rating changes may affect firm behavior is sparse. Following, a downgrade in credit rating, managers may increase risk-taking to improve their overall performance or reduce risk-taking following upgrades to ensure that their performance is assessed more on the basis of what they may deem success in the form of an upgrade. Using a sample of firms trading in the U.S from 1994-2013, we find evidence of change in risk-taking behavior. We use cross-sectional regressions and matching using propensity scores and Barber and Lyon (1997) methodology to measure changes in risk-taking and we do find evidence of changes in managerial risk-taking behavior. Furthermore, we find that the direction of change (increase or decrease) in some cases is dependent on the type of measure rather than the type of rating change.

River ecosystems at risk

Worldwide water managers are increasingly challenged to allocate sufficient and affordable water supplies to different water use sectors without further degrading river ecosystems and their valuable services to mankind. Since 1950 human population almost tripled, water abstractions increased by a factor of four, and the number of large dam constructions is about eight times higher today. From a hydrological perspective, the alteration of river flows (temporally and spatially) is one of the main consequences of global change and further impairments can be expected given growing population pressure and projected climate change. Implications have been addressed in numerous hydrological studies, but with a clear focus on human water demands. Ecological water requirements have often been neglected or addressed in a very simplistic manner, particularly from the large-scale perspective. With his PhD thesis, Christof Schneider took up the challenge to assess direct (dam operation and water abstraction) and indirect (climate change) impacts of human activities on river flow regimes and evaluate the consequences for river ecosystems by using a modeling approach. The global hydrology model WaterGAP3 (developed at CESR) was applied and further developed within this thesis to carry out several model experiments and assess anthropogenic river flow regime modifications and their effects on river ecosystems. To address the complexity of ecological water requirements the assessment is based on three main ideas: (i) the natural flow paradigm, (ii) the perception that different flows have different ecological functions, and (iii) the flood pulse concept. The thesis shows that WaterGAP3 performs well in representing ecologically relevant flow characteristics on a daily time step, and therefore justifies its application within this research field. For the first time a methodology was established to estimate bankfull flow on a 5 by 5 arc minute grid cell raster globally, which is a key parameter in eFlow assessments as it marks the point where rivers hydraulically connect to adjacent floodplains. Management of dams and water consumption pose a risk to floodplains and riparian wetlands as flood volumes are significantly reduced. The thesis highlights that almost one-third of 93 selected Ramsar sites are seriously affected by modified inundation patterns today, and in the future, inundation patterns are very likely to be further impaired as a result of new major dam initiatives and climate change. Global warming has been identified as a major threat to river flow regimes as rising temperatures, declining snow cover, changing precipitation patterns and increasing climate variability are expected to seriously modify river flow regimes in the future. Flow regimes in all climate zones will be affected, in particular the polar zone (Northern Scandinavia) with higher river flows during the year and higher flood peaks in spring. On the other side, river flows in the Mediterranean are likely to be even more intermittent in the future because of strong reductions in mean summer precipitation as well as a decrease in winter precipitation, leading to an increasing number of zero flow events creating isolated pools along the river and transitions from lotic to lentic waters. As a result, strong impacts on river ecosystem integrity can be expected. Already today, large amounts of water are withdrawn in this region for agricultural irrigation and climate change is likely to exacerbate the current situation of water shortages.

Judgments, forecasts and decisions: an analysis of fund managers over time

Decision theory is the study of models of judgement involved in, and leading to, deliberate and (usually) rational choice. In real estate investment there are normative models for the allocation of assets. These asset allocation models suggest an optimum allocation between the respective asset classes based on the investors’ judgements of performance and risk. Real estate is selected, as other assets, on the basis of some criteria, e.g. commonly its marginal contribution to the production of a mean variance efficient multi asset portfolio, subject to the investor’s objectives and capital rationing constraints. However, decisions are made relative to current expectations and current business constraints. Whilst a decision maker may believe in the required optimum exposure levels as dictated by an asset allocation model, the final decision may/will be influenced by factors outside the parameters of the mathematical model. This paper discusses investors' perceptions and attitudes toward real estate and highlights the important difference between theoretical exposure levels and pragmatic business considerations. It develops a model to identify “soft” parameters in decision making which will influence the optimal allocation for that asset class. This “soft” information may relate to behavioural issues such as the tendency to mirror competitors; a desire to meet weight of money objectives; a desire to retain the status quo and many other non-financial considerations. The paper aims to establish the place of property in multi asset portfolios in the UK and examine the asset allocation process in practice, with a view to understanding the decision making process and to look at investors’ perceptions based on an historic analysis of market expectation; a comparison with historic data and an analysis of actual performance.

Adding value to ecological risk assessment with population modeling

Current measures used to estimate the risks of toxic chemicals are not relevant to the goals of the environmental protection process, and thus ecological risk assessment (ERA) is not used as extensively as it should be as a basis for cost-effective management of environmental resources. Appropriate population models can provide a powerful basis for expressing ecological risks that better inform the environmental management process and thus that are more likely to be used by managers. Here we provide at least five reasons why population modeling should play an important role in bridging the gap between what we measure and what we want to protect. We then describe six actions needed for its implementation into management-relevant ERA.

The cost of choice: how corporate real estate managers evaluate business space options

Firms are faced with a wider set of choices when they identify a need for new office space. They can build or purchase accommodation, lease space for long or short periods with or without the inclusion of services, or they can use “instant office” solutions provided by serviced office operators. But how do they evaluate these alternatives and are they able to make rational choices? The research found that the shortening of business horizons lead to the desire for more office space on short-term contracts often with the inclusion of at least some facilities management and business support services. The need for greater flexibility, particularly in financial terms, was highlighted as an important criteria when selecting new office accommodation. The current office portfolios held were perceived not to meet these requirements. However, there was often a lack of good quality data available within occupiers which could be used to help them analyse the range of choices in the market. Additionally, there were other organisational constraints to making decisions about inclusive real estate products. These included fragmentation of decisions-making, internal politics and the lack of assessment of business risk alongside real estate risk. Overall therefore, corporate occupiers themselves act as an interial force to the development of new and innovative real estate products.

Risk reduction and diversification in UK commercial property portfolios

The issue of diversification in direct real estate investment portfolios has been widely studied in academic and practitioner literature. Most work, however, has been done using either partially aggregated data or data for small samples of individual properties. This paper reports results from tests of both risk reduction and diversification that use the records of 10,000+ UK properties tracked by Investment Property Databank. It provides, for the first time, robust estimates of the diversification gains attainable given the returns, risks and cross‐correlations across the individual properties available to fund managers. The results quantify the number of assets and amount of money needed to construct both ‘balanced’ and ‘specialist’ property portfolios by direct investment. Target numbers will vary according to the objectives of investors and the degree to which tracking error is tolerated. The top‐level results are consistent with previous work, showing that a large measure of risk reduction can be achieved with portfolios of 30–50 properties, but full diversification of specific risk can only be achieved in very large portfolios. However, the paper extends previous work by demonstrating on a single, large dataset the implications of different methods of calculating risk reduction, and also by showing more disaggregated results relevant to the construction of specialist, sector‐focussed funds.

Managing governance, risk and compliance for post-crisis regulatory change: a model of IS capabilities for financial organizations

The 2008-2009 financial crisis and related organizational and economic failures have meant that financial organizations are faced with a ‘tsunami’ of new regulatory obligations. This environment provides new managerial challenges as organizations are forced to engage in complex and costly remediation projects with short deadlines. Drawing from a longitudinal study conducted with nine financial institutions over twelve years, this paper identifies nine IS capabilities which underpin activities for managing regulatory themed governance, risk and compliance efforts. The research shows that many firms are now focused on meeting the Regulators’ deadlines at the expense of developing a strategic, enterprise-wide connected approach to compliance. Consequently, executives are in danger of implementing siloed compliance solutions within business functions. By evaluating the maturity of their IS capabilities which underpin regulatory adherence, managers have an opportunity to develop robust operational architectures and so are better positioned to face the challenges derived from shifting regulatory landscapes.

Essays in corporate risk management

This research investigates the factors that lead Latin American non-financial firms to manage risks using derivatives. The main focus is on currency risk management. With this purpose, this thesis is divided into an introduction and two main chapters, which have been written as stand-alone papers. The first paper describes the results of a survey on derivatives usage and risk management responded by the CFOs of 74 Brazilian non-financial firms listed at the São Paulo Stock Exchange (BOVESPA), and the main evidence found is: i) larger firms are more likely to use financial derivatives; ii) foreign exchange risk is the most managed with derivatives; iii) Brazilian managers are more concerned with legal and institutional aspects in using derivatives, such as the taxation and accounting treatment of these instruments, than with issues related to implementing and maintaining a risk management program using derivatives. The second paper studies the determinants of risk management with derivatives in four Latin American countries (Argentina, Brazil, Chile and Mexico). I investigate not only the decision of whether to use financial derivatives or not, but also the magnitude of risk management, measured by the notional value of outstanding derivatives contracts. This is the first study, to the best of my knowledge, to use derivatives holdings information in emerging markets. The use of a multi-country setting allows the analysis of institutional and economic factors, such as foreign currency indebtedness, the high volatility of exchange rates, the instability of political and institutional framework and the development of financial markets, which are issues of second-order importance in developed markets. The main contribution of the second paper is on the understanding of the relationship among currency derivatives usage, foreign debt and the sensitivity of operational earnings to currency fluctuations in Latin American countries. Unlikely previous findings for US firms, my evidence shows that derivatives held by Latin American firms are capable of producing cash flows comparable to financial expenses and investments, showing that derivatives are key instruments in their risk management strategies. It is also the first work to show strong and robust evidence that firms that benefit from local currency devaluation (e.g. exporters) have a natural currency hedge for foreign debt that allows them to bear higher levels of debt in foreign currency. This implies that firms under this revenue-cost structure require lower levels of hedging with derivatives. The findings also provide evidence that large firms are more likely to use derivatives, but the magnitude of derivatives holdings seems to be unrelated to the size of the firm, consistent with findings for US firms.

Re-framing risk transfer to assess integrative partnership opportunities: the S.A.R. approach and the AIG/BID/CNO regional surety bond facility of 2007

Identificar, compartilhar e gerenciar os riscos de contratar são preocupações que impedem o estabelicmento e a administração das Parcerias Públicos Particulares (PPP). Porem, gerentes das entidades públicas, bancos de formento, construtoras e seguradoras pesquisam e utilizam muitas técnicas para enfrentar a avaliação e gerenciamento dos riscos. A transferência de risco é uma indicação dos chamados benefícios que são inspirados pelos PPP, contudo devido às realidades contratuais e conceptuais, a entidade de cede o risco (o partido público) permanece quase sempre como o portador final do risco. Conseqüentemente, o partido público retem um interesse de resistência na gerência total destes riscos cedidos. Esta dissertação explora alguns defeitos das aproximações comuns a conceituar a gestão de risco no contexto de um PPP. Focalizando os conceitos da interdependência e da reciprocidade e usando na decisão para transferir o risco do projeto, esta dissertação molda a decisão para transferir o risco nos termos das realidades interdependentes de relacionamentos sistemáticos, alargam os conceitos técnicos do risco e da avaliação de risco, considerando o uso reflexivo das diferenças na analise de um estudo de caso. O autor explora estes conceitos em uma análise da decisão de um gerente de risco da empresa de construção civil brasileira Construtora Norberto Odebrecht (ODB) para projetar uma facilidade inovadora da ligação de garantia com Inter-American Development Bank (BID) e uma seguradora, American International Group (AIG), um negócio que ganhe o reconhecimento Trade Finance Magazine’s 2007 deal of the year. O autor mostra que por compreender a transferência de risco nos termos abordados nesta dissertação, um atore que transfere o risco pode identificar e criar mais oportunidades de estabelecer relacionamentos em longo prazo, através dos processos que a literatura atual do PPP ainda não considere. Os resultados devem fornecer contribuições para a pesquisas sobre a transferência do risco do projeto, na cooperação entre organizações e na seleção do sócio do projeto do potencial.

Supply chain risk management: An exploratory research in Brazilian aerospace industry

This paper aimed to analyse supply chain risk factors in aerospace industry. It was conducted an exploratory research at an important Brazilian aerospace company. This company has a major role at the global aerospace industry. Senior managers assessed risk factors such as quality, productivity, supply chain, business strategy, organisation, environmental and natural political, indicators, product management, and information system. Analytic hierarchy process was applied to prioritise these factors. The most relevant were quality and productivity. Copyright © 2011 Inderscience Enterprises Ltd.

Corporate risk management and exchange rate volatility in Latin America

Includes bibliography

Risk management in software projects through Knowledge Management techniques: Cases in Brazilian Incubated Technology-Based Firms

In businesses such as the software industry, which uses knowledge as a resource, activities are knowledge intensive, requiring constant adoption of new technologies and practices. Another feature of this environment is that the industry is particularly susceptible to failure; with this in mind, the objective of this research is to analyze the integration of Knowledge Management techniques into the activity of risk management as it applies to software development projects of micro and small Brazilian incubated technology-based firms. Research methods chosen were the Multiple Case Study. The main risk factor for managers and developers is that scope or goals are often unclear or misinterpreted. For risk management, firms have found that Knowledge Management techniques of conversion combination would be the most applicable for use; however, those most commonly used refer to the conversion mode as internalization.. © 2013 Elsevier Ltd. APM and IPMA.

Wildlife Risk Management at Vancouver International Airport

The Vancouver International Airport (YVR) is the second busiest airport in Canada. YVR is located on Sea Island in the Fraser River Estuary - a world-class wintering and staging area for hundreds of thousands of migratory birds. The Fraser Delta supports Canada’s largest wintering populations of waterfowl, shorebirds, and raptors. The large number of aircraft movements and the presence of many birds near YVR pose a wide range of considerable aviation safety hazards. Until the late 1980s when a full-time Wildlife Control Program (WCP) was initiated, YVR had the highest number of bird strikes of any Canadian commercial airport. Although the risks of bird strikes associated with the operation of YVR are generally well known by airport managers, and a number of risk assessments have been conducted associated with the Sea Island Conservation Area, no quantitative assessment of risks of bird strikes has been conducted for airport operations at YVR. Because the goal of all airports is to operate safely, an airport wildlife management program strives to reduce the risk of bird strikes. A risk assessment establishes the current risk of strikes, which can be used as a benchmark to focus wildlife control activities and to assess the effectiveness of the program in reducing bird strike risks. A quantitative risk assessment also documents the process and information used in assessing risk and allows the assessment to be repeated in the future in order to measure the change in risk over time in an objective and comparative manner. This study was undertaken to comply with new Canadian legislation expected to take effect in 2006 requiring airports in Canada to conduct a risk assessment and develop a wildlife management plan. Although YVR has had a management plan for many years, it took this opportunity to update the plan and conduct a risk assessment.

Mapping of risk and susceptibility of shallow-landslide in the city of Sao Paulo, Brazil

In the city of Sao Paulo, where about 11 million people live, landslides and flooding occur frequently, especially during the summer. These landslides cause the destruction of houses and urban equipment, economic damage, and the loss of lives. The number of areas threatened by landslides has been increasing each year. The objective of this article is to analyze the probability of risk and susceptibility to shallow landslides in the Limoeiro River basin, which is located at the head of the Aricanduva River basin, one of the main hydrographic basins in the city of Sao Paulo. To map areas of risk, we created a cadastral survey form to evaluate landslide risk in the field. Risk was categorized into four levels based on natural and anthropogenic factors: R1 (low risk), R2 (average risk), R3 (high risk), and R4 (very high risk). To analyze susceptibility to shallow landslides, we used the SHALSTAB (Shallow Landsliding Stability) mathematical model and calculated the Distribution Frequency (DF) of the susceptibility classes for the entire basin. Finally, we performed a joint analysis of the average Risk Concentration (RC) and Risk Potential (RP). We mapped 14 risk sectors containing approximately 685 at-risk homes, more than half of which presented a high (R3) or very high (R4) probability of risk to the population. In the susceptibility map, 41% of the area was classified as stable and 20% as unconditionally unstable. Although the latter category accounted a smaller proportion of the total area, it contained a concentration (RC) of 41% of the mapped risk areas with a risk potential (RP) of 12%. We found that the locations of areas predicted to be unstable by the model coincided with the risk areas mapped in the field. This combination of methods can be applied to evaluate the risk of shallow landslides in densely populated areas and can assist public managers in defining areas that are unstable and inappropriate for occupation. (C) 2012 Elsevier B.V. All rights reserved.

A Web GIS Decision Support System For Coastal Risk Assessment and Mitigation Planning

Coastal flooding poses serious threats to coastal areas around the world, billions of dollars in damage to property and infrastructure, and threatens the lives of millions of people. Therefore, disaster management and risk assessment aims at detecting vulnerability and capacities in order to reduce coastal flood disaster risk. In particular, non-specialized researchers, emergency management personnel, and land use planners require an accurate, inexpensive method to determine and map risk associated with storm surge events and long-term sea level rise associated with climate change. This study contributes to the spatially evaluation and mapping of social-economic-environmental vulnerability and risk at sub-national scale through the development of appropriate tools and methods successfully embedded in a Web-GIS Decision Support System. A new set of raster-based models were studied and developed in order to be easily implemented in the Web-GIS framework with the purpose to quickly assess and map flood hazards characteristics, damage and vulnerability in a Multi-criteria approach. The Web-GIS DSS is developed recurring to open source software and programming language and its main peculiarity is to be available and usable by coastal managers and land use planners without requiring high scientific background in hydraulic engineering. The effectiveness of the system in the coastal risk assessment is evaluated trough its application to a real case study.