Value Creating Determinants Of Enterprise Risk Management And Its Economic Value Added (original) (raw)
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Enterprise Risk Management (ERM) is an essential technique used to manage myriad of risks in a holistic manner. This paper espouses an ERM implementation framework which encompasses three dimensions, seven areas which in turn are operationalized by fourteen elements. This paper also empirically examines the impact of ERM towards the firm’s performance measured through Economic Value Added (EVA) analysis. The research design incorporates descriptive and cross sectional analysis. Results of the empirical analysis show that ERM implementation does have a significant positive impact on firm performance. The results support the hypotheses that firm’s which implements ERM will have higher performance as manifested through the EVA analysis.
Enterprise Risk Management and Firm Performance Validated Through Economic Value Added Factors
Enterprise Risk Management (ERM) is an essential technique, used to manage a myriad of risks in a holistic manner. This paper presents an ERM implementation framework which is operationalized by fourteen elements. It highlights the impact of ERM towards the firm’s performance measured through Economic Value Added (EVA) factors. The research design incorporates descriptive and cross-sectional analysis. Data was collected from 120 public listed companies in Bursa Malaysia through questionnaires survey. Results of the empirical analysis show that ERM implementation has significant positive impact on firm’s performance. The results support the hypothesis that the firms which implements ERM will enhance their performance as validated through the perceived measurement of EVA factors. This study offers a perspective of measuring ERM implementation impact through EVA factors as compared to the accounting measures.
Enterprise Risk Management (ERM) is an essential technique used to manage a myriad of risks in a holistic manner. The purpose of this study is to propose a conceptual framework for investigating the impact of ERM on the firm’s value through Economic Value Added (EVA) performance measure. The research design for our study incorporates conclusive research. It covers the descriptive and cross sectional design. It focuses specifically on the objective performance measures of ERM through EVA measure approach. The study adopts an ERM implementation framework comprising three dimensions namely, structure, governance, and process which will be translated into fourteen implementation elements. The study estimates the positive effect of ERM using EVA as a measuring proxy for firm value. EVA computes company profit by incorporating cost of capital.
A STRATEGIC FRAMEWORK FOR VALUE ENHANCING ENTERPRISE RISK MANAGEMENT
2011
Enterprise risk management (ERM) is a new management concept fast ascending the corporate agenda globally. Its relevancy and popularity as a management technique are abetted by the changing business practices and burgeoning regulatory requirements on risk management. The shift in paradigm in heightened risk awareness in the wake of several high profile and deep impact corporate governance scandal and financial mismanagement cases as well as increased terrorist threat on the physical assets of firms has compelled firms to be more pro-active in addressing risk issues.
Is enterprise risk management a value added activity?
E+M Ekonomie a Management, 2018
Enterprise 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, fi nancial, 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-fi nancial 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 fi nd 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 fl ows 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.
Corporate Risk Management: Theory and Practice
As the sophistication of risk management instruments has increased, the scope of corporate risk management policy has become much broader. These instruments provide great flexibility in structuring a risk management strategy for the firm. But to realize their potential requires a detailed understanding of the instruments and their uses. This article reviews the logic of the links between risk management and value creation as well as the accumulating empirical evidence.
African Journal of Business Management, 2012
Enterprise risk management (ERM) encompasses the spectrum of identifying and analyzing risk from an integrated, company-wide perspective in a structured and disciplined approach in aligning strategy, processes, people, technology and knowledge with a purpose of evaluating and managing the uncertainties facing the enterprise as it creates value. ERM essentially lays concern for managing the firm's idiosyncratic risks apart from the systematic risks. However, the neo-classical finance theory (NCFT) postulates that managing the firm's idiosyncratic risks is irrelevant. ERM implementation framework embraces the active management of the firm's three classes of unsystematic risk, namely tactical risk, strategic risk and normative risk. This paper aims to provide a critical review of literature on the notion of managing firms' unsystematic (specific) risk via an ERM implementation framework that leads to the enhancement of shareholders' value. The mechanism through which the firms' value enhancement is supposed to take place is theorized by a strategic conceptualization of risk premium model.
Does Enterprise Risk Management Create Value
Journal of Advanced Management Science, 2013
This research paper examines whether the enterprise risk management (ERM) practices can create value to Malaysian public listed companies (PLCs) in Malaysia. The sample consists of 417 PLCs in Malaysia. The analysis focuses on the companies' financial characteristics by using stepwise multiple regressions. This research ventures into understanding the influence of financial ratios and risk management on shareholders wealth. The findings show that return on equity, opacity, debt over asset, operating margin, cost of financing and taxation, and financial slack are significant for financial companies. While, only return on asset is significant for financial companies. This is could be due to the nature of financial companies that are highly regulated.
Risk is inherent to all functions of a business. Enterprise risk management (ERM) is for the measurement and the management of all significant risks of the business holistically irrespective of types and sources. Consequently, the portfolio of enterprise risk includes both objective and subjective elements. Two key benefits of ERM-i.e., shareholder value creation and securing competitive advantage-have been derived from the empirical study. The traditional financial approach, e.g., Economic Value Added, was found inadequate to measure the performance of ERM. The Balanced Score Card is adopted to identify the other value drivers of the firm and framing appropriate communication strategies. Finally, a conceptual framework of measuring the benefits of ERM has been proposed. The study offers significant advances in the current debate on the performance of enterprise risk management, in particular, minimizing the existing gap between the academic understanding and practitioners' experience on the topic.
Risk management and corporate value
Ekonomski horizonti, 2015
Empirical studies show that firms usually manage risk, and invest most of the efforts in the management of foreign-exchange and interest rate risks (Bodnar & Gebhardt, 1999; Brown, Crabb & Haushalter, 2006; Aretz & Bartram, 2010). Firms usually manage risks of current transactions and use financial derivatives, paying less attention to risks of future transactions, so that they rarely use operational risk management