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Abstract:
Financial dealer firms have invested heavily in recent years to develop information
systems for risk measurement. I take it as given that technological progress is likely to continue
at a rapid pace, making it less expensive for financial firms to assemble risk information. I look
beyond questions of risk measurement methodology to investigate the implications of risk
management information systems. By examining several theoretical models of the firm in the
presence of asymmetric information, I explore how a financial firm�s capital budgeting, incentive
compensation, capital structure, and risk management activities are likely to change as it
becomes less costly to assemble risk information. I also explore the likely effects of the falling
cost of assembling risk information on a financial firm�s organizational structure. Two common
themes emerge: centralization within the firm and increased disclosure of risk information
outside the firm are both likely to increase.
Full paper (27 KB PDF)
Keywords
Asymmetric information, value at risk, capital budgeting, incentive compensation, capital structure, organizational structure.
PDF files: Adobe Acrobat Reader ZIP files: PKWARE
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Last update: July 19, 2001
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