Abstract
Risk management has become more important due to the recent financial crisis. Firms invest significant amounts of money in implementing enterprise-wide (integrated) risk management programs. However, it is questionable if these programs really do pay off for them. Despite increased attention on Enterprise Risk Management (ERM) and its wide usage, we know very little about if ERM is value adding to firms. This paper provides evidence on the value-relevance of ERM by investigating the impact of ERM adoption on firm valuation. It advances prior studies by introducing a superior ERM measurement. ERM is measured by using a unique dataset which is constructed by a survey conducted on how listed
Nordic firms organize their risk management. Our ERM measure is calculated from the survey responses, and we are able to introduce more dimensions into ERM – thanks to valuable inside information on firms’ risk management programs, most of which otherwise would not be obtainable through publicly available information – enabling us to capture the complexity of ERM. The main finding of the paper is that value creation of ERM is not supported after controlling for other determinants of firm value and endogeneity bias. The
findings are highly consistent over different specifications.
Nordic firms organize their risk management. Our ERM measure is calculated from the survey responses, and we are able to introduce more dimensions into ERM – thanks to valuable inside information on firms’ risk management programs, most of which otherwise would not be obtainable through publicly available information – enabling us to capture the complexity of ERM. The main finding of the paper is that value creation of ERM is not supported after controlling for other determinants of firm value and endogeneity bias. The
findings are highly consistent over different specifications.
Original language | English |
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Title of host publication | The Routledge Companion to Strategic Risk Management |
Editors | Torben Juul Andersen |
Publisher | Routledge |
Number of pages | 43 |
ISBN (Electronic) | 9781315780931 |
ISBN (Print) | 978-1138016514 |
Publication status | Published - 2015 |
Publication series
Name | Routledge Companions in Business, Management and Accounting |
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Keywords
- Enterprise Risk Management
- ERM
- firm value
- endogeneity
- instrumental