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

Huashan Li, Hugo Lam, William Ho, Andy Yeung

Research output: Contribution to journalArticlepeer-review

Abstract

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 United States 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.

Original languageEnglish
JournalJournal of Operations Management
Early online date16 Mar 2022
DOIs
Publication statusE-pub ahead of print - 16 Mar 2022

Bibliographical note

Funding Information:
Ho would like to acknowledge The University of Melbourne for The Faculty of Business and Economics' Eminent Research Scholars awards in 2018 and 2019. Yeung was partially supported by PolyU's research fund no. 99QP.

Publisher Copyright:
© 2022 Association for Supply Chain Management, Inc.

Keywords

  • Chief risk officers
  • firm risk
  • operational efficiency
  • power
  • industry litigation threat
  • industry dynamism
  • chief risk officers

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