Achieving Enterprise Stability Based on Economic Capital

In a highly competitive environment, companies can focus too much attention on maximizing profits in the short term, while neglecting basic principles of the risk management process. Many bankruptcies, including those of big and successful companies listed on the New York Stock Exchange (NYSE), have stemmed from a failure to plan for the downside of risk. Enterprise stability and a company’s chance for survival can be improved by applying a modified approach to the role of equity as “economic capital.” This article presents an overview of the principles of economic capital for facilitating stability and survival of the company and contends that Survival Enterprise Risk Management by Economic Capital (SERMEC) can effectively create a new organizational culture based on Risk Employment for Enterprise Development (REED).

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