Enterprise risk management in China: the impacts on organisational performance

Abstract

This paper examines the impacts of enterprise risk management (ERM) on organisational performance in China. By using data gathered from the manufacturing sector, the paper examines the valuation of ERM through its effects on firm cost and efficiency. The empirical evidence shows that ERM can benefit larger size firms with lesser earning variability and higher returns on equity. With fewer insiders, ERM firms can take more systematic risks and gain more benefits from international diversification. The results suggest significant value premiums attached to effective ERM through mitigating firm cost and enhancing firm efficiency. The results also suggest that the strong valuation effects of ERM are associated with cost management, inventory management, asset management and cash flow management.