The Concept of Risk Capital and Its Application in Non-Financial Companies: A Sustainable Dimension

Abstract

The prime purpose of this paper is to explain the concept of risk capital and advocate for its implementation in the management of non-financial companies. The paper is kept in the discursive tone, as the problem is new, and it first requires to establish the conceptual framework for further empirical considerations. With reference to the origins of the concept of risk capital (related to its understanding in financial institutions), the paper discusses the utility of risk capital for the management of risk in non-financial companies, with the recognition of the sustainable dimension of risk capital. The discussion is framed within the corporate finance approach. In the applicative dimension, the paper identifies the universe of the sources of risk capital and proposes a taxonomy of these sources. It considers both the well-established traditional sources, as well as the state-of-the-art solutions that are in the early stages of their adoption for the needs of corporate end-users. The conclusions address the possible areas of tensions and of the inclusion of risk capital in the decision-making process, as well as the areas of further empirical research within.