Risk maturity rating linked to stock price volatility: Aon report
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A new report from Aon Global Risk Consulting, the risk management consulting operation of London-based Aon P.L.C., cites a statistically significant link between companies’ risk maturity and the volatility of their stock price.
Research conducted by Aon and the Wharton School of the University of Pennsylvania in Philadelphia shows a statistically significant link between a higher risk maturity rating and lower stock price volatility, Aon said.
The research, based on data collected through the Aon Risk Maturity Index Report, analyzed the annual financial reports of more than 100 publicly traded companies representing more than 25 industries around the world. It showed that during the period from 2010 to 2012, organizations with the highest risk maturity rating of 5.0 (advanced) as a group displayed stock market volatility 50% below that of the group of organizations with the lowest risk maturity rating of 1.0 (initial).
“Not only is strong risk management associated with more stable performance over time, it also appears to bolster financial performance and cushion organizations from negative external pressures,” the report said. “In a comparison of stock price returns during a period of challenging market conditions, only those organizations with higher risk maturity ratings posted positive returns.”
The Aon Risk Maturity Index is an online diagnostic tool designed to evaluate organizations’ risk management practices against 10 characteristics of advanced risk maturity. The self-reporting tool determines an organization’s risk maturity rating based on responses to 125 questions covering 40 risk management components.
Since its launch in April 2011, more than 500 organizations have participated in the index. The current global average is 3.0 (defined) the Aon report said, with the distribution of ratings globally skewed slightly toward lower scores.
