Special Issues: 2002
Tough Love in Risk Management: The Market as Financial Parent
Just as "spare the rod, spoil the child" was parenting advice for another generation, we struggle to find the correct combination of discipline and permissiveness to monitor the risk-taking behavior of growing financial enterprises. We are reluctant to appear too strict because of the possibility that innovation and development will be squelched. At the same time, turning a blind eye to the financial mischief of "rambunctious youth" has enabled institutions to undertake excessive risk to the detriment of both stakeholders and the entire financial system. It is the market's challenge to design the equivalent of a financial woodshed to induce aggressive risk monitoring and control. Such solutions may take the form of:
- Security design incorporating risk management incentives
- Capital structure emphasizing the role of subordinated debt
- Pricing policies and spreads
- Disclosure policies
- Evaluation of the accuracy of risk measures
- Compensation practices and optimal intra-firm and inter-firm contracting
The Journal of Economics and Business will publish a special issue in 2001, and invites papers examining the role of the market in creating innovative techniques for risk management and control. This topic is especially timely, given the recent proposals on harmonization of disclosure requirements put forth by the Basel Committee on Bank Supervision. However, the challenge is not limited to bank regulators. Innovative self-regulation can lighten any monitor's "parenting" burden. It is the interplay between the market and the regulatory environment that is the focus of this issue, perhaps offering a positive view of the regulatory dialectic.
All papers will be refereed. The deadline for submission is September 1, 2000 and there is no submission fee. Authors should submit four copies of their paper to the editor of the special issue, Linda Allen, Department of Economics and Finance, Zicklin School of Business, Baruch College, City University of New York, 17 Lexington Avenue, New York, NY 10010.