Does enterprise risk management increase firm value?

  • McShane M
  • Nair A
  • Rustambekov E
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Abstract

Enterprise risk management ({ERM)} has emerged as a construct that ostensibly overcomes limitations of silo-based traditional risk management ({TRM)}, yet little is known about its effectiveness. The scant research on the relationship between {ERM} and firm performance has offered mixed findings and has been limited by the lack of a suitable proxy for the degree of {ERM} implementation. Using Standard and Poor’s newly available risk management rating, the authors find evidence of a positive relationship between increasing levels of {TRM} capability and firm value but no additional increase in value for firms achieving a higher {ERM} rating. Considering these results, the authors suggest directions for future research.

Author-supplied keywords

  • Enterprise risk management (ERM)
  • Firm value
  • Insurance firms
  • S&P ERM rating
  • Traditional risk management (TRM)

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Authors

  • Michael K. McShane

  • Anil Nair

  • Elzotbek Rustambekov

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