<scp>The Value of Enterprise Risk Management</scp>

TLDR

Enterprise risk management has attracted growing media attention in recent years. The study measures how widely firms implement ERM and evaluates its impact on firm value. The authors model ERM determinants and its impact on firm value using U.S. insurers, estimating the effect on Tobin's Q.

Abstract

Abstract Enterprise risk management (ERM) has been the topic of increased media attention in recent years. The objective of this study is to measure the extent to which specific firms have implemented ERM programs and, then, to assess the value implications of these programs. We focus our attention in this study on U.S. insurers in order to control for differences that might arise from regulatory and market differences across industries. We simultaneously model the determinants of ERM and the effect of ERM on firm value. We estimate the effect of ERM on Tobin's Q, a standard proxy for firm value. We find a positive relation between firm value and the use of ERM. The ERM premium of roughly 20 percent is statistically and economically significant.