Information Conveyed in Hiring Announcements of Senior Executives Overseeing Enterprise-Wide Risk Management Processes

36 Pages Posted: 4 Sep 2007

See all articles by Mark S. Beasley

Mark S. Beasley

North Carolina State University

Donald P. Pagach

North Carolina State University

Richard S. Warr

North Carolina State University

Multiple version iconThere are 2 versions of this paper

Abstract

Enterprise risk management (ERM) is the process of analyzing the portfolio of risks facing the enterprise to ensure that the combined effect of such risks is within an acceptable tolerance. While more firms are adopting ERM, little academic research exists about the costs and benefits of ERM. Proponents of ERM claim that ERM is designed to enhance shareholder value; however, portfolio theory suggests that costly ERM implementation would be unwelcome by shareholders who can use less costly diversification to eliminate idiosyncratic risk. This study examines equity market reactions to announcements of appointments of senior executive officers overseeing the enterprise's risk management processes. Based on a sample of 120 announcements from 1992-2003, we find that the univariate average two-day market response is not significant, suggesting that a broad definitive statement about the benefit or cost of implementing ERM is not possible. However, our multivariate analysis reveals that there are significant relations between the magnitude of equity market returns and certain firm specific characteristics. For non-financial firms, announcement period returns are positively associated with firm size and the volatility of prior periods' reported earnings and negatively associated with leverage and the extent of cash on hand relative to liabilities. For financial firms, however, there are fewer statistical associations between announcement returns and firm characteristics. These results suggest that the costs and benefits of ERM are firm-specific.

Keywords: Enterprise Risk Management

JEL Classification: M41, M49, G12, G20, G30

Suggested Citation

Beasley, Mark S. and Pagach, Donald P. and Warr, Richard S., Information Conveyed in Hiring Announcements of Senior Executives Overseeing Enterprise-Wide Risk Management Processes. Journal of Accounting, Auditing and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1010203

Mark S. Beasley (Contact Author)

North Carolina State University ( email )

Box 8113
Raleigh, NC 27695-8113
United States
919-515-6064 (Phone)
919-515-4446 (Fax)

Donald P. Pagach

North Carolina State University ( email )

Raleigh, NC 27695-8113
United States
919-515-4447 (Phone)
919-515-4446 (Fax)

Richard S. Warr

North Carolina State University ( email )

BOX 7229
Raleigh, NC 27695-7229
United States
919-513-4646 (Phone)
919-515-6943 (Fax)

HOME PAGE: http://www4.ncsu.edu/~rswarr/

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