Enterprise Risk Management: Strategic Antecedents, Risk Integration and Performance
University of Nebraska at Lincoln - Department of Finance
California State University, Los Angeles
University of Nebraska-Lincoln
December 18, 2011
North American Actuarial Journal, Vol. 16, No. 1, pp. 1-28, 2012
The current literature on the adoption of enterprise risk management (ERM) abstracts from the issue of its strategic context. Accounting for the interplay between ERM and various individual risk management (IRM) practices, this paper presents a theoretical basis to study the strategic determinants, risk integration, and value creation of ERM. We tested hypotheses with data from the US property and casualty (PC) insurance industry. Our results show that insurers with more reinsurance purchase and greater geographic diversification are more likely to adopt ERM. After ERM initiation, the magnitude of certain IRM adjustments is substantial. Interestingly, the market responds negatively to ERM adoption. ERM displays a strong negative correlation with firm value with a discount of 5% (4%) in terms of Tobin's Q (ROA).
Number of Pages in PDF File: 49
Keywords: Enterprise risk management, Individual risk management strategies, Risk integration, Firm performance
JEL Classification: G22, G32, D81Accepted Paper Series
Date posted: June 24, 2010 ; Last revised: April 16, 2012
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