The Value of Enterprise Risk Management

Abstract

Enterprise risk management (ERM) has been the topic of increased media attention in recent years. The objective of this study is to measure the extent to which specific firms have implemented ERM programs and, then, to assess the value implications of these programs. We focus our attention in this study on U.S. insurers in order to control for differences that might arise from regulatory and market differences across industries. We simultaneously model the determinants of ERM and the effect of ERM on firm value. We estimate the effect of ERM on Tobin's Q, a standard proxy for firm value. We find a positive relation between firm value and the use of ERM. The ERM premium of roughly 20 percent is statistically and economically significant.

The Relationship between Corporate Strategy and Enterprise Risk Management: Evidence from Canada

“…Gordon et al (2009) found that the relation between ERM and firm performance is contingent on a number of firm-specific factors which include uncertainties in the company's environment, competition within its industrial sector, complexity of its activities, its size and the control exerted by its board of directors. Finally, while Hoyt and Liebenberg (2011) found a positive relationship between adopting an integrated risk management system and the value of insurance companies, McShane et al (2011) could not come to the same conclusion. It should be noted that the divergence of results between those studies may be attributed, among other factors, to the adoption of samples from different industrial sectors, to the quality of information available on integrated risk management (Lajili and Zeghal, 2005) and to the use of distinct measurements for those risks.…”

“…Today, more and more decision makers are convinced that such approaches need to be revisited (Hoyt and Liebenberg, 2011). An integrated Enterprise Risk Management approach would be more appropriate to face management challenges in this new economy characterized by ever increasing volatility and uncertainties (McShane et al, 2011).…”

“…Enterprise Risk Management (ERM) is a rigorous approach to analyze all risks which may prevent a company from reaching its strategic objectives. Hoyt and Liebenberg (2011) suggest that ERM might reduce the volatility of earnings and stock prices and lower the cost of issuing equity while fostering a better synergy between the various risk management initiatives within the firm. All these factors should have a positive effect of integrated risk management on the company's value.…”

Could Enterprise Risk Management (ERM) Create, Protect and Enhance Shareholders’ Wealth Among Malaysian Listed Issuers

“…The main criteria for evaluating the effectiveness of ERM is to measure the extent to which the eight components of the framework are executed. To date, studies providing empirical evidence of the impact of ERM implementation on financial performance are in their infancy [5][6][7][8][9]. The need for more research is critical considering the current tendency of regulatory authorities to shift their attention to ERM.…”

A Conceptual Framework of Potential Conflicts with the Role of the Internal Auditor in Enterprise Risk Management

“…Selim and McNamee (1999), highlighted that "a common framework and language of risk is the hallmark of ERM." The primary objective of ERM is to maximize stakeholders' value (COSO, 2004;Beasley et al, 2006;Hoyt & Liebenberg, 2011;Pagach & Warr, 2011). COSO (2004, p. 2) defines ERM as: A process, effected by an entity's board of directors, management and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.…”