Is enterprise risk management a value added activity?

Simple item page
dc.contributor.authorMarc, Mojca
dc.contributor.authorSprčić, Danijela Miloš
dc.contributor.authorMešin Žagar, Marina
dc.contributor.otherEkonomická fakultacs
dc.date.accessioned2018-03-29
dc.date.available2018-03-29
dc.date.issued2018-03-29
dc.description.abstractEnterprise risk management (ERM) programs are advocated as the solution for the failures and weaknesses of the traditional silo-based risk management in creating and protecting stakeholders’ value. ERM encompasses activities and strategies which enable the company to systematically identify, measure, reduce or exploit, as well as to control and monitor the exposure to various types of corporate risks – strategic, financial, operational, reporting as well as compliance risks. By considering the interactive effects of different risk events, ERM offers a balance between the dual nature of risk – ensuring effective protection from threats and seizing the opportunities. This paper explores the association between ERM and a set of fundamental value determinants of S&P 500 non-financial companies over the period from 2003 to 2012. Contrary to arguments found in the existing ERM literature, ERM companies did not experience a positive effect on most of the value drivers. We find that ERM is associated with lower expected growth rates within one to two years after the ERM adoption, indicating that ERM could even have a negative effect on the company’s fundamental value. On the other hand, the study showed that ERM is associated with higher free cash flows after six years of its use. Our research thus found indicative evidence that ERM produces some positive effects over a longer term, as well as some negative immediate effects, which could be explained with the increased risk aversion of ERM companies. However, since the tested models are explorative in nature, more theoretical and empirical research is needed to establish how ERM really works within a company.en
dc.formattext
dc.format.extent17 strancs
dc.identifier.doi10.15240/tul/001/2018-1-005
dc.identifier.eissn2336-5604
dc.identifier.issn1212-3609
dc.identifier.urihttps://dspace.tul.cz/handle/15240/22787
dc.language.isoen
dc.publisherTechnická Univerzita v Libercics
dc.publisherTechnical university of Liberec, Czech Republicen
dc.publisher.abbreviationTUL
dc.relation.isbasedonAllayannis, G., & Weston, J. (2001). The Use of Foreign Currency Derivatives and Firm Market Value. The Review of Financial Studies, 14(1), 243-276. https://dx.doi.org/10.1093/rfs/14.1.243.
dc.relation.isbasedonBank for International Settlement (BIS). (2008). Principles for Sound Liquidity Risk Management and Supervision. Basel: BIS. Retrieved from https://www.bis.org/publ/bcbs144.pdf.
dc.relation.isbasedonBaxter, R., Bedard, J. C., Hoitash, R., & Yezegel, A. (2013). Enterprise risk management program quality: Determinants, value relevance, and the financial crisis. Contemporary Accounting Research, 30(4), 1264-1295. https://dx.doi.org/10.1111/j.1911-3846.2012.01194.x.
dc.relation.isbasedonBromiley, P., McShane, M. K., Nair, A., & Rustambekov, E. (2014). Enterprise Risk Management: Review, Critique, and Research Directions. Long Range Planning, 48(4), 265-276. https://dx.doi.org/10.1016/j.lrp.2014.07.005.
dc.relation.isbasedonCampbell, T. S., & Kracaw, W. A. (1987). Optimal Managerial Incentive Contracts and the Value of Corporate Insurance. The Journal of Financial and Quantitative Analysis, 22(3), 315-328. https://dx.doi.org/10.2307/2330966.
dc.relation.isbasedonChartered Global Management Accountant (CGMA). (2015). Global State of Enterprise Risk Management: Analysis of the challenges and opportunities for improvement. Durham, NC: CGMA and Pool College of Management.
dc.relation.isbasedonDamodaran, A. (2012). Investment Valuation: Tools and Techniques for Determining the Value of Any Asset. Hoboken, NJ: John Wiley & Sons.
dc.relation.isbasedonDeMarzo, P. M., & Duffie, D. (1995). Corporate Incentives for Hedging and Hedge Accounting. Review of Financial Studies, 8(3), 743-771. https://dx.doi.org/10.1093/rfs/8.3.743.
dc.relation.isbasedonDolde, W. (1995). Hedging, leverage and primitive risk. Journal of Financial Engineering, 4(2), 187-216.
dc.relation.isbasedonEckles, D. L., Hoyt, R. E., & Miller, S. M. (2014). The impact of enterprise risk management on the marginal cost of reducing risk: Evidence from the insurance industry. Journal of Banking & Finance, 43, 247-261. https://dx.doi.org/10.1016/j.jbankfin.2014.10.006.
dc.relation.isbasedonFinancial Service Authority (FSA). (2008). Strengthening Liquidity Standards. London: FSA.
dc.relation.isbasedonFraser, J., & Simkins, B. J. (Eds.). (2010). Enterprise Risk Management. Kolb Series in Finance. Hoboken, NJ: John Wiley & Sons.
dc.relation.isbasedonFroot, K. A., Scharfstein, D. S., & Stein, J. C. (1993). Risk Management: Coordinating Corporate Investment and Financing Policies. Journal of Finance, 48(5), 1629-1658. https://dx.doi.org/10.1111/j.1540-6261.1993.tb05123.x.
dc.relation.isbasedonGay, G. D., & Nam, J. (1998). The underinvestment problem and corporate derivatives use. Financial Management, 27(4), 53-69.
dc.relation.isbasedonGéczy, C., Minton, B. A., & Schrand, C. (1997). Why Firms Use Currency Derivatives. The Journal of Finance, 52(4), 1323-1354. https://dx.doi.org/10.1111/j.1540-6261.1997.tb01112.x.
dc.relation.isbasedonGordon, L. A., Loeb, M. P., & Tseng, C-Y. (2009). Enterprise Risk Management and Firm Performance: A Contingency Perspective. Journal of Accounting and Public Policy, 28(4), 301-327. https://dx.doi.org/10.1016/j.jaccpubpol.2009.06.006.
dc.relation.isbasedonGrace, M. F., Leverty, J. T., Phillips, R. D., & Shimpi, P. (2015). The Value of Investing in Enterprise Risk Management. Journal of Risk and Insurance, 82(2), 289-316. https://dx.doi.org/10.1111/jori.12022.
dc.relation.isbasedonHaushalter, G. D., Heron, R. A., & Lie, E. (2002). Price Uncertainty and Corporate Value. Journal of Corporate Finance: Contracting, Governance and Organization, 8(3), 271-286. https://dx.doi.org/10.1016/S0929-1199(01)00043-8.
dc.relation.isbasedonHaushalter, G. D. (2000). Financing Policy, Basis Risk, and Corporate Hedging: Evidence from Oil and Gas Producers. The Journal of Finance, 55(1), 107-152. https://dx.doi.org/10.1111/0022-1082.00202.
dc.relation.isbasedonHoshi, T., Kashyap, A., & Scharfstein, D. (1991). Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups. Quarterly Journal of Economics, 106(1), 33-60. https://dx.doi.org/10.2307/2937905.
dc.relation.isbasedonHoyt, R. E., & Liebenberg, A. P. (2011). The Value of Enterprise Risk Management. Journal of Risk and Insurance, 78(4), 795-822. https://dx.doi.org/10.1111/j.1539-6975.2011.01413.x.
dc.relation.isbasedonInstitute of International Finance (IIF). (2007). Principles of Liquidity Risk Management. Washington: IIF.
dc.relation.isbasedonKirkpatrick, G. (2009). The corporate governance lessons from the financial crisis. OECD Journal Financial Market Trends, 2009/1(96), 61-87.
dc.relation.isbasedonLam, J. (2001). The CRO Is Here to Stay. Risk Management, 48(4), 16-20.
dc.relation.isbasedonLam, J. (2003). Enterprise Risk Management: From Incentives to Controls. Hoboken, NJ: John Wiley & Sons.
dc.relation.isbasedonLiebenberg, A. P., & Hoyt, R. E. (2003). The determinants of enterprise risk management: evidence from the appointment of chief risk officers. Risk Management and Insurance Review, 6(1), 37-52. https://dx.doi.org/10.1111/1098-1616.00019.
dc.relation.isbasedonMcShane, M. K., Nair, A., & Rustambekov, E. (2011). Does Enterprise Risk Management Increase Firm Value. Journal of Accounting, Auditing and Finance, 26(4), 641-658. https://dx.doi.org/10.1177/0148558X11409160.
dc.relation.isbasedonMcWilliams, A., & Siegel, D. (2000). Corporate Social Responsibility and Financial Performance: correlation or misspecification? Strategic Management Journal, 21(5), 603-609. https://dx.doi.org/10.1002/(SICI)1097-0266(200005)21.
dc.relation.isbasedonMeulbroek, L. K. (2002). A Senior Manager’s Guide. Journal of Applied Corporate Finance, 14(4), 56-70. https://dx.doi.org/10.1111/j.1745-6622.2002.tb00449.x.
dc.relation.isbasedonMian, S. (1996). Evidence on Corporate Hedging Policy. Journal of Financial and Quantitative Analysis, 31(3), 419-439. https://dx.doi.org/10.2307/2331399.
dc.relation.isbasedonMiloš Sprčić, D., & Šević, Ž. (2012). Determinants of Hedging Decisions in Croatian and Slovenian large non-financial companies. Research in International Business and Finance, 26(1), 1-25. https://dx.doi.org/10.1016/j.ribaf.2011.05.001.
dc.relation.isbasedonMinton, B. A., & Schrand, C. (1999). The impact of cash flow volatility on discretionary investment and the cost of debt and equity financing. Journal of Financial Economics, 54(3), 423-460. https://dx.doi.org/10.1016/S0304-405X(99)00042-2.
dc.relation.isbasedonModigliani, M., & Miler, M. (1963). Corporate Income Taxes and the Cost of Capital: A Correction. The American Economic Review, 53(3), 433-443.
dc.relation.isbasedonNance, D. R., Smith, C. W., & Smithson, C. W. (1993). On the determinants of corporate hedging. Journal of Finance, 48(1), 267-284. https://dx.doi.org/10.1111/j.1540-6261.1993.tb04709.x.
dc.relation.isbasedonNocco, B. W., & Stulz, R. M. (2006). Enterprise Risk Management: Theory and Practice. Journal of Applied Corporate Finance, 18(4), 8-20. https://dx.doi.org/10.1111/j.1745-6622.2006.00106.x.
dc.relation.isbasedonOrganization for Economic Co-operation and Development (OECD). (2009). Corporate Governance and the Financial Crisis: Key Findings and Main Messages. Paris: OECD.
dc.relation.isbasedonSegal, S. (2011). Corporate Value of Enterprise Risk Management. Hoboken, NJ: John Wiley & Sons.
dc.relation.isbasedonSmith, C. W., & Stulz, R. M. (1985). The Determinants of Firms Hedging Policies. The Journal of Financial and Quantitative Analysis, 20(4), 391-405. https://dx.doi.org/10.2307/2330757.
dc.relation.isbasedonStulz, R. (1984). Optimal Hedging Policies. The Journal of Financial and Quantitative Analysis, 19(2), 127-140. https://dx.doi.org/10.2307/2330894.
dc.relation.isbasedonTitman, S., & Wessels, R. (1988). The determinants of capital structure choice. The Journal of Finance, 43(1), 1-19. https://dx.doi.org/10.1111/j.1540-6261.1988.tb02585.x.
dc.relation.isbasedonVacik, E., Fotr, J., Špaček, M., & Souček I. (2014). Scenarios and their application in strategic planning. E&M Ekonomie a Management, 17(3), 118-135. https://dx.doi.org/10.15240/tul/001/2014-3-010.
dc.relation.isbasedonWooldridge, J. M. (2002). Econometric analysis of cross section and panel data. Cambridge, MA: MIT Press.
dc.relation.ispartofEkonomie a Managementcs
dc.relation.ispartofEconomics and Managementen
dc.relation.isrefereedtrue
dc.rightsCC BY-NC
dc.subjectenterprise risk managementen
dc.subjectvalue driversen
dc.subjectvalue creationen
dc.subjectnon-financial companiesen
dc.subject.classificationG30
dc.subject.classificationG32
dc.titleIs enterprise risk management a value added activity?en
dc.typeArticleen
local.accessopen
local.citation.epage84
local.citation.spage68
local.facultyFaculty of Economics
local.filenameEM_1_2018_05
local.fulltextyes
local.relation.abbreviationE+Mcs
local.relation.abbreviationE&Men
local.relation.issue1
local.relation.volume21
Files
Original bundle
Now showing 1 - 1 of 1
Thumbnail Image
Name:
EM_1_2018_05.pdf
Size:
1.13 MB
Format:
Adobe Portable Document Format
Description:
Článek
Download
Collections
Číslo 1