Introduction

The role of corporate risk management (CRM) has emerged as an essential aspect in contemporary business strategies, playing a key role in protecting businesses from various uncertainties that could jeopardize their financial health and future success. As the world’s markets become more linked and volatile, the need to identify, evaluate, and reduce risks has grown significantly. CRM involves a variety of methods and tools aimed at handling both financial and operational risks, ensuring that businesses can navigate challenges like market volatility, credit risks, regulatory shifts, and geopolitical events.

Fundamentally, CRM depends on the strategic utilization of derivatives, insurance, and other financial instruments that assist companies in shielding themselves from potential losses. These tools not only shield businesses from potential downsides but also allow them to improve their capital structures, maintain liquidity, and increase the overall worth of the company. The incorporation of risk management into the framework of corporate governance and decision-making highlights a wider acknowledgment that managing risk is about more than merely avoiding losses; it is also about seizing chances for expansion and innovation in a world that is becoming more complex.

This introduction lays the groundwork for delving into the various facets of CRM, including its effects on the capital structure, characteristics of the firm, and its wider implications for business strategy in a complex global economy. Despite the increasing focus on enterprise risk management (ERM) as a key strategy for improving an organization’s ability to withstand challenges, there’s still disagreement on the best approaches and their effects on a company’s success. While recent studies have made progress in examining different parts of ERM, the variety of methods and situations these studies cover have resulted in scattered findings. This situation poses a difficulty for both academics and professionals in figuring out the best way to apply ERM in various company contexts. Furthermore, the quick progress in technology, especially in data analysis and artificial intelligence (AI), has introduced new dimensions to ERM that are not fully understood or included in current models. As companies deal with more complicated risks, the importance of having a thorough and unified understanding of ERM practices and their results has become more crucial.

This research aims to fill these gaps by analyzing and summarizing the latest studies on ERM, with the goal of pinpointing top practices, common obstacles, and areas that need more investigation. By doing this, it seeks to offer a more precise guide for the successful application and development of ERM in today’s business settings.

1. To examine the research methodologies and previous studies on CRM.
2. To highlight the research gaps and future direction of risk management.

Methodology

A systematic literature review (SLR) displayed in Table 1 was carried out to offer a detailed and sophisticated insight into the previous research related to corporate social responsibility (CSR) within the particular domain of the hotel sector. An SLR is a commonly employed research technique designed to pinpoint, assess, and scrutinize the current scholarly works on a particular theme or area in a thorough and critical way. The chosen keywords were merged employing Boolean logic operators, such as “OR” and “AND,” through the use of logical connectors. The task of examining academic literature included a methodical search for articles, working papers, and reports that had been peer-reviewed and were published in prestigious journals and academic databases like Scopus. Terms like “corporate risk management,” “financial risk,” “operational risk,” “strategic risk,” “derivatives,” “hedging,” and “capital structure” were used.

Table 1. Corporate Risk Management Literature Review.

Results and Discussion

Many studies explore how the use of financial instruments like options, forwards, futures, and swaps affects the performance of companies. The evidence gathered suggests that companies employing these financial tools can lower the fluctuations in their earnings and the expenses related to financial distress, ultimately enhancing their overall worth. For instance, findings from Allayannis and Weston (2001) indicated that firms utilizing foreign currency derivatives for hedging purposes typically have a greater market value than those that do not. Research also shows that managing risk can influence a company’s financial structure by easing financial constraints and reducing the cost of borrowing. For example, Graham and Rogers (2002) showed that companies that manage risk through derivatives are better positioned to incur debt due to the stabilization of their cash flows, which enhances their financial structure. While the field of financial risk management is well-explored, there is an increasing focus on operational and strategic risk management. Operational risk management, which includes efforts to mitigate supply chain risks and enhance IT security, is crucial for ensuring the continuity of business operations. On the other hand, strategic risk management addresses issues related to market competition, regulatory changes, and technological disruptions.

Research conducted by Kaplan and Mikes (2012) highlights the necessity of incorporating risk management into the strategic decision-making process to enhance a company’s long-term performance. The role of corporate governance in CRM is also a subject of extensive investigation. Organizations with robust governance structures are more inclined to implement effective risk management practices. The implementation of CRM strategies can differ significantly across various sectors. Industries such as energy, finance, and manufacturing, for instance, possess unique risk profiles and therefore utilize distinct risk management approaches. For example, energy firms typically prioritize addressing risks linked to fluctuations in commodity prices, while financial institutions focus on managing risks associated with credit and interest rates. Studies by Carter et al. (2002) in the airline industry, for example, show how hedging against fuel prices can reduce operational risk and boost profitability.

Conclusion

This research has in-depth explored how CRM, especially through the strategic application of financial derivatives, plays a crucial role in forming the capital structures of companies and affecting their overall traits. The results indicate that firms that adopt risk management strategies, like using financial derivatives for hedging, can more effectively manage their cash inflows, lower the expenses related to financial difficulties, and, in turn, boost their market worth. Additionally, incorporating risk management into the governance of a company has been demonstrated to enhance the decision-making capabilities of businesses, enabling them to better deal with market fluctuations. By combining previous studies and presenting concrete evidence, this research provides valuable perspectives for scholars and professionals alike. It closes the gap between academic theories and real-world applications, showing how proficient risk management can act as an essential instrument for companies operating in complex and unpredictable markets. Furthermore, the research highlights the significance of strong corporate governance in executing successful risk management approaches, providing a detailed roadmap for future studies and practical applications in this field. As data analytics, AI, and machine learning progress quickly, upcoming studies might investigate the ways these technologies can be incorporated into risk management strategies. Grasping the potential of AI-powered models to forecast and reduce risks efficiently could be essential for enhancing corporate governance and the process of making decisions.

Declaration of Conflicting Interests

The author declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author received no financial support for the research, authorship, and/or publication of this article.