Ekonomika a management
IS ENTERPRISE RISK MANAGEMENT A VALUE ADDED ACTIVITY?
Severe consequences of the global ﬁnancial crisis resulted in re-thinking the risk management processes and approaches. OECD (2009), BIS (2008), FSA (2008) and IIF (2007) suggested that corporate risks should be “high on the agenda” of every organization, highlighting the need for a comprehensive (enterprise-wide) risk management framework. What has been realized in the aftermath of the global ﬁnancial crisis is that a failure to transmit information about risk exposures can be attributed to the traditional silo-based risk management (TRM) (OECD, 2009).
Jméno a příjmení autora:
Mojca Marc, Danijela Miloš Sprčić, Marina Mešin Žagar
Enterprise Risk Management, value drivers, value creation, non-ﬁnancial companies
DOI (& full text):
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.…více
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, 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.
Ekonomika a management