The implications of risk management information systems for the organization of financial firms

Michael S. Gibson
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Michael S. Gibson: https://www.federalreserve.gov/econres/michael-s-gibson.htm

No 632, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

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.

Keywords: Risk (search for similar items in EconPapers)
Date: 1998
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:632

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