Enterprise Risk Management: Strategic Antecedents, Risk Integration and Performance

North American Actuarial Journal, Vol. 16, No. 1, pp. 1-28, 2012

49 Pages Posted: 24 Jun 2010 Last revised: 16 Apr 2012

See all articles by Yijia Lin

Yijia Lin

University of Nebraska at Lincoln - Department of Finance

Min-Ming Wen

California State University, Los Angeles

Jifeng Yu

University of Nebraska-Lincoln

Date Written: December 18, 2011

Abstract

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).

Keywords: Enterprise risk management, Individual risk management strategies, Risk integration, Firm performance

JEL Classification: G22, G32, D81

Suggested Citation

Lin, Yijia and Wen, Min-Ming and Yu, Jifeng, Enterprise Risk Management: Strategic Antecedents, Risk Integration and Performance (December 18, 2011). North American Actuarial Journal, Vol. 16, No. 1, pp. 1-28, 2012, Available at SSRN: https://ssrn.com/abstract=1629341 or http://dx.doi.org/10.2139/ssrn.1629341

Yijia Lin (Contact Author)

University of Nebraska at Lincoln - Department of Finance ( email )

Lincoln, NE 68588-0490
United States

Min-Ming Wen

California State University, Los Angeles ( email )

5151 State University Dr
Los Angeles, CA 90032
United States

Jifeng Yu

University of Nebraska-Lincoln ( email )

United States

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