Nature, extent and antecedents of risk managment practices in knowledge-intensive firms

This study provides empirical evidence on the nature and extent of risks faced by Small to Medium-Sized Knowledge Intensive Firms (SMKIFs) and the risk management approaches adopted by them. The study also assesses the effects of selected organisational factors such as industry, entity size and risk governance leadership on the commitment by SMKIFs to using an Enterprise Risk Management (ERM) approach. Data was obtained through a questionnaire survey of SMKIFs in the state of Victoria, Australia which were either in the bio-technology (bio-tech) or the accounting and legal (business services) industry sectors. Based on a total of 104 (13%) useable responses from senior managers in charge of risk management, some of the key findings include the identification of the top three risks faced by SMKIFs being (i) potential damage to firm’s reputation, (ii) inability to recruit and retain workers who have appropriate skills and expertise, and (iii) increase in costs. Interestingly, while 51% of the respondents described their firms as being willing to or keen to take risks, 38% saw their firms as being either preferring not to take risks or refuse to take risks, with the remainder of the firms (11%) viewed as neutral. The data also indicates that more than half of the respondent firms (54%) had established either a complete or a partial ERM system. Further, data analysis based on a binary logit regression model indicates bio-techs, firm size and directors’ support of risk management as key predictors of ERM implementation in SMKIFs.