Research On The Risk Management From A Parent Company To Its Subsidiaries

Today, business groups, formed by a parent company and its subsidiaries are all around the world, playing a decisive role in the social and economical development. Thence, researching on the risk management from a parent company to its subsidiaries has some innovative and forward-looking sense in theory and has a strong practical significance in management practice.First, this paper gives a systematic literature review, summary and commentary on the theory of risk management, points out that the existence of some deficiencies of existing research (such as the research on the nature of risk is not deep enough, the decision-making for risk response is lack of theoretical supporting, etc.), and shows the author’s points. Through literature review, this author found the lack of research on the risk management from a parent company to its subsidiaries. Therefore, this author determines the core issues of this study and research:how to build the framework of the risk management from a parent company to its subsidiaries.Then, this paper studies the special mechanism for the risk management from a parent company to its subsidiaries, interprets two propositions:"the risk management from a parent company to its subsidiaries, essentially is the monitoring and evaluation from a parent company to its subsidiaries on the major decision-making process and the decision implementation. Such management is an indirect risk management" and "Such monitoring and evaluation from a parent company to its subsidiaries have regulative effectiveness between the risk and decisions of its subsidiaries". Relying on the two propositions and the discussions from Simon and others on relationship between the decision-making and the risk,this paper builds a conceptual model.In this model, decision-making quality of subsidiaries on major issues is a independent variable, the decision implementation of subsidiaries on major issues is a intermediate variable, the supervision and evaluation on decision-making process and the implementation from the parent company to its subsidiaries is a manipulated variable, the risk of a subsidiary is the dependent variable.This conceptual model has five basic assumptions and the four sub-hypotheses. This author tests these hypotheses through empirical. Empirical findings show that:four basic assumptions in the five fully established, one established approximately;4sub-hypothesis fully established.Finally, based on theoretical and empirical research findings, this paper builds a DPS framework of the risk management from a parent company to its subsidiaries. DPS framework includes four major risk (financial risk, market risk, operational risk, strategic risk), the double dimension (decision-making process and decision execution results), three processes (risk warning process, eliminating process, behavior and performance evaluation process), three points (decision-making process on major issues, important indicators of the real-time and regular expression, the evaluation on the behavior and performance of the important figures). DPS framework demonstrates the whole process of the risk management from a parent company as an investor to its subsidiaries; it is a relatively complete system. Role-based investor, State-owned Assets Supervision and Administration Commission (SASAC) similar to the parent company, which DPS framework can also be used in the risk management from SASAC to its ownership enterprises. It has a wider application.