Corporate risk management from the perspective of transaction cost theory

The theory of transaction costs is used for the theoretical justification of risk management, and the theory of the principal-agent is used for the development of the part of corporate governance related to risk management monitoring. It is shown that, unlike Markowitz’s portfolio theory, transaction cost theory assumes that corporate risk management can be cost-effective, especially if the company has comparative advantages in terms of costs/risk management information. Comparative advantages are due to economies of scale in risk insurance, especially in the insurance or hedging of financial risks. The costs of creating and conducting corporate risk management, including the accumulation of necessary experience, are saved at the expense of scale while reducing the (overall) risk of the company. It is assumed that risk managers are a highly specific factor (like products and services). When managing risks, relational contracts are regularly implemented, they are performed by highly qualified personnel, which usually leads to minimal transaction costs.