The Impact of Enterprise Risk Management on Firm Value: Empirical Evidence from Romanian Non-financial Firms

This research examines the effect of enterprise risk management on firm value in Pakistan. Further, this study empirically examines company characteristics that establish the execution of an enterprise risk management system. Using a sample of final dataset of 83 non-financial firms located in Pakistan. The sample included non-financial firms from the year 1999 to 2015 and so up to seventeen observation years per company. As in context of Pakistan, most of the organizations are already implement an ERM programs and establish specialized ERM departments because the ERM is now a global term and has become increasingly relevant because of the growing difficulty of risk and an additional development of regulatory frame works. For the empirical evidences, data collected from non-financial firms listed at the Pakistan Stock Exchange (PSX). Results of logistic regression shows that Capital Opacity, Profitability, Financial Leverage, Firm Size and Slack have positive impact on the implementation of an ERM system but Industrial diversification, Industry and Return on Equity are negatively related to an ERM engagement. The results of ordinary least square regression finds positive relationship between use of an ERM and firm value.

Download Full-text

Enterprise Risk Management, Insurer Value Maximisation, and Market Frictions

Astin Bulletin ◽

10.2143/ast.38.1.2030415 ◽

2008 ◽

Vol 38 (01) ◽

pp. 293-339 ◽

Cited By ~ 7

Author(s):

Shaun Yow ◽

Michael Sherris

Keyword(s):

Risk Management ◽

Financial Distress ◽

Firm Value ◽

Enterprise Risk Management ◽

Market Imperfections ◽

Demand Elasticity ◽

Value Maximization ◽

Enterprise Risk ◽

Financial Quality ◽

The Impact

Enterprise risk management has become a major focus for insurers and reinsurers. Capitalization and pricing decisions are recognized as critical to firm value maximization. Market imperfections including frictional costs of capital such as taxes, agency costs, and financial distress costs are an important motivation for enterprise risk management. Risk management reduces the volatility of financial performance and can have a significant impact on firm value maximization by reducing the impact of frictional costs. Insurers operate in imperfect markets where demand elasticity of policyholders and preferences for financial quality of insurers are important determinants of capitalization and pricing strategies. In this paper, we analyze the optimization of enterprise or firm value in a model with market imperfections. A realistic model of an insurer is developed and calibrated. Frictional costs, imperfectly competitive demand elasticity, and preferences for financial quality are explicitly modelled and implications for enterprise risk management are quantified.

Download Full-text

Empirical Analysis of Joint Impact of Enterprise Risk Management and Corporate Governance on Firm Value

International Review of Advances in Business Management and Law ◽

10.30585/irabml.v1i1.66 ◽

2018 ◽

Vol 1 (1) ◽

pp. 34-50 ◽

Cited By ~ 1

Author(s):

Ananth Rao

Keyword(s):

Risk Management ◽

Corporate Governance ◽

Firm Value ◽

Positive Impact ◽

Gulf Cooperation Council ◽

Shareholder Wealth ◽

Enterprise Risk Management ◽

System Modelling ◽

Enterprise Risk ◽

The Impact

This paper analyzes simultaneity and endogeneity of ERM and Corporate Governance. It assesses quantitative relationship between Corporate Governance, ERM and value of the firm. The research results provide quantitative justifications for the boards to make investments in ERM and Corporate Governance initiatives for improved shareholder wealth. 3SLS-IV system modelling was applied on 2004-11 data of Gulf Cooperation Council financial institutions. Our research confirms the simultaneity and endogeneity of Corporate Governance, ERM and Firm Value determinants. Firm value is jointly and positively impacted by ERM & Corporate Governance initiatives although the impact was less significant. Unexpectedly, ERM initiative was significantly and negatively impacted by determinants such as intangibility, and profitability. Firm size was the only determinant that showed significant and positive impact on firm value. Relative to UAE the corporate governance mechanism was active in Bahrain, Saudi Arabia, Kuwait and Oman firms. Further, the existence of audit committees in the GCC firm’s boards and ERM adoption significantly positively impacted the corporate governance by 3.42% and 1.7239% respectively. Keywords: Corporate Governance, Enterprise Risk Management, Firm Value, Simultaneity, Endogeneity, Gulf Cooperation Council (GCC) economies. JEL codes: C15, C21, C51, D57, F30, G21, G32, G34, K22, L21, M31, M41, N25, O16

Download Full-text

ANALISIS FIRM VALUE PADA PERUSAHAAN YANG MENERAPKAN ENTERPRISE RISK MANAGEMENT (ERM)

Jurnal Riset Bisnis dan Investasi ◽

10.35697/jrbi.v1i3.57 ◽

2016 ◽

Vol 1 (3) ◽

pp. 118

Author(s):

Ahmad Zaky ◽

Mukaram Mukaram

Keyword(s):

Risk Management ◽

Financial Crisis ◽

Firm Value ◽

Financial Sector ◽

The United States ◽

Enterprise Risk Management ◽

Potential Growth ◽

Enterprise Risk ◽

Significant Difference ◽

The Impact

A risk is not an odd thing which is encountered in the business activities. Therefore, risk management is becoming a serious concern within the company. To anticipate the impact of risk on the company and in order to create the Firm Value, Enterprise Risk Management (ERM) has been developed. ERM is not just aimed at the creation of value for the company, ERM is believed to be able to manage the risks facing the company better and integrated through the business organization. However, in 2008, the financial crisis in the United States become consideration of the impact of the implementation of ERM in the firm, particularly in the financial sector. An unsuccessful management of the firms in the financial sector could have a major impact on the economy of a country that resulted in the financial crisis occurred and many of those who argue that this is due to an irrelevant and improper implementation of ERM. In order to examine this, this research conducted on the financial sector in Indonesia, especially the listed banking companies in Indonesia Stock Exchange. In this study, the samples are 37 banking firms listed on Indonesia Stock Exchanges to examining the differences Firm Value means between the banking firms which implement ERM and banking firm which do not implement ERM. The Results show that among the bank companies, there is no significant difference of the magnitude of the Firm Value of an existing company. In essence, the financial sector especially the banking industry in Indonesia, the implementation of ERM is not an appropriate solution of efforts to increase the value of the firm in order to increase the potential growth of the investment.

Download Full-text

Enterprise Risk Management, Insurer Value Maximisation, and Market Frictions

Astin Bulletin ◽

10.1017/s051503610001518x ◽

2008 ◽

Vol 38 (1) ◽

pp. 293-339 ◽

Cited By ~ 14

Author(s):

Shaun Yow ◽

Michael Sherris

Keyword(s):

Risk Management ◽

Financial Distress ◽

Firm Value ◽

Enterprise Risk Management ◽

Market Imperfections ◽

Demand Elasticity ◽

Value Maximization ◽

Enterprise Risk ◽

Financial Quality ◽

The Impact

Enterprise risk management has become a major focus for insurers and reinsurers. Capitalization and pricing decisions are recognized as critical to firm value maximization. Market imperfections including frictional costs of capital such as taxes, agency costs, and financial distress costs are an important motivation for enterprise risk management. Risk management reduces the volatility of financial performance and can have a significant impact on firm value maximization by reducing the impact of frictional costs. Insurers operate in imperfect markets where demand elasticity of policyholders and preferences for financial quality of insurers are important determinants of capitalization and pricing strategies. In this paper, we analyze the optimization of enterprise or firm value in a model with market imperfections. A realistic model of an insurer is developed and calibrated.Frictional costs, imperfectly competitive demand elasticity, and preferences for financial quality are explicitly modelled and implications for enterprise risk management are quantified.

Download Full-text

Enterprise Risk Management and Its Effect on Firm Value in Turkey

Journal of Management Research ◽

10.5296/jmr.v9i1.10124 ◽

2016 ◽

Vol 8 (4) ◽

pp. 86 ◽

Cited By ~ 2

Author(s):

Özlem SAYILIR ◽

Muhammad FARHAN

Keyword(s):

Risk Management ◽

Business Strategy ◽

Firm Value ◽

Manufacturing Industry ◽

Enterprise Risk Management ◽

Management Approach ◽

Risk Monitoring ◽

Enterprise Risk ◽

Integrated Risk ◽

The Impact

Enterprise Risk Management (ERM)is an integrated risk management approach, which considers risks in the context of business strategy and manages them with a portfolio perspective through well defined risk responsibilities and strong risk monitoring processes. The purpose of this study is to examine the impact of ERM on firm value for 130 firms operating in the manufacturing industry and listed in Borsa Istanbul. For this purpose, we utilized panel regression models on financial data collected in the period 2008-2013. The dependent variable is Tobin’s Q, which is used as a proxy of firm value. The independent variable is ERM implementation, whereas the control variables are firm size, leverage ratios and profitability ratios. We tested the hypothesis that there is a relationship between ERM and firm value. Our findings suggest that there seems to be no statistically significant relationship between firm value and ERM. We also employed a survey to explore how firms implement ERM and to obtain information about motivation behind adoption of ERM, challenges of ERM implementation and effects of ERM adoption.

Download Full-text

The Impact of the Adoption of Enterprise Risk Management on the Industrial Financial Performance

International Journal of Research in Business and Social Science (2147-4478) ◽

10.20525/ijrbs.v6i6.815 ◽

2017 ◽

Vol 6 (6) ◽

pp. 9-20

Author(s):

Kingsley Karunaratne Alawattegama

Keyword(s):

Risk Management ◽

Firm Performance ◽

Firm Value ◽

Positive Impact ◽

Value Relevance ◽

Secondary Data ◽

Enterprise Risk Management ◽

Integrated Framework ◽

Enterprise Risk ◽

The Impact

Enterprise risk management (ERM) has gained an increased attention during the recent past as an integrated approach to manage risk for creating and preserving firm value. The objective of this study is to explore and empirically verify as to whether the adoption of the ERM has an impact on the firm performance. This study uses both primary and secondary data pertaining to 129 companies listed on the Colombo Stock Exchange under the banking & finance, insurance, diversified, manufacturing, food and beverage and chemical and pharmaceutical sectors. Primary and secondary data are collected by distributing a survey questionnaire and analyzing the published financial statements of the observing companies. Researcher adopts ERM integrated framework suggested by the committee of sponsoring organization (COSO) of the Treadway Commission of the USA to assess the value relevance of ERM and uses return on equity (ROE) as a proxy to measure the firm performance. This study finds, except for control activities, none of the key ERM functions, suggested by the COSO’s ERM integrated framework, has a significant impact on the performance of listed companies. Internal environment, objective setting, and information & communication indicated a weak positive impact on the firm performance. Nevertheless, none of those impacts were statistically significant. Empirical evidence reveals that firms’ risk responding strategies have no impact on the performance. Surprisingly, monitoring of ERM functions has weak negative, but not significant, impact on the firm performance. These findings are contradictory with the theoretical expectation that the adoption of ERM practices has a positive impact on firm performance as confirmed by the prior researchers.

Download Full-text

The Impact of Enterprise Risk Management on Firm Performance: Evidence from Sri Lankan Banking and Finance Industry

International Journal of Business and Management ◽

10.5539/ijbm.v13n1p225 ◽

2017 ◽

Vol 13 (1) ◽

pp. 225

Author(s):

Kingsley Karunaratne Alawattegama

Keyword(s):

Risk Management ◽

Firm Performance ◽

Firm Value ◽

Positive Impact ◽

Enterprise Risk Management ◽

Integrated Framework ◽

Banking And Finance ◽

Finance Industry ◽

Enterprise Risk ◽

The Impact

This study explores the impact of the adoption of enterprise risk management (ERM) practices on firm performance. A sample of forty five banking and finance companies listed on the Colombo Stock Exchange (CSE) was selected for this study and uses both primary and secondary data for the empirical analysis. The extent of adoption of ERM practices was assessed by using the ERM integrated framework of committee of sponsoring organization (COSO) of the Treadway Commission of USA. Return on equity (ROE) is used as a proxy to measure the firm performance and uses multivariate regression analysis to assess the impact of key ERM functions on firm performance. This study finds none of the eight key ERM functions suggested by the COSO’s ERM integrated framework has a significant impact on firm performance. Event identifications, risk assessment, risk response and information & communication indicate a positive impact on firm performance. However, none of those impacts were significant. Surprisingly, empirical evidence reveals that objective setting; event identification, control activities and monitoring of ERM functions have a negative, but not significant, impact on the firm performance. These findings induce the corporate managers to pay a close attention to the cost-benefits considerations when designing and implementing ERM practices and not heavily relied upon and extensively invest on ERM as a vehicle for creating firm value.

Download Full-text