Does ERM Improve Firm Value? Evidence from Listed Chinese Nonfinancial SOEs

47 Pages Posted: 17 Dec 2014 Last revised: 16 Dec 2016

See all articles by Jing Ai

Jing Ai

University of Hawaii at Manoa - Shidler College of Business

Hua Chen

University of Hawaiʻi at Mānoa

Zhao Yang

University of International Business and Economics (UIBE)

Date Written: December 15, 2014

Abstract

Enterprise risk management (ERM) has gradually become a celebrated risk management practice by corporations in the U.S. and worldwide. However, evidence on the value of ERM was mostly from U.S. insurers and other financial institutions. We provide some of the first evidence for the value of ERM for nonfinancial firms and in the international markets, in the meanwhile arguably mitigating a number of sample-related biases commonly seen in this type of studies. Using a unique sample of listed Chinese nonfinancial State Owned Enterprises (SOEs) that were stipulated to implement ERM by a set of regulatory guidelines in 2006, we show that ERM significantly increases firm value. This result is robust after accounting for China’s unique institutional background and differences in firm characteristics between the ERM and the non-ERM firms. Our analysis using a sample of all listed Chinese nonfinancial firms provides similar results albeit slightly weaker effects.

Keywords: enterprise risk management (ERM), firm value, nonfinancial firms, state owned enterprises, propensity score matching

JEL Classification: D21, L20, D81

Suggested Citation

Ai, Jing and Chen, Hua and Yang, Zhao, Does ERM Improve Firm Value? Evidence from Listed Chinese Nonfinancial SOEs (December 15, 2014). Fox School of Business Research Paper No. 15-068. Available at SSRN: https://ssrn.com/abstract=2538915 or http://dx.doi.org/10.2139/ssrn.2538915

Jing Ai

University of Hawaii at Manoa - Shidler College of Business ( email )

2404 Maile Way
Honolulu, HI 96822
United States

Hua Chen (Contact Author)

University of Hawaiʻi at Mānoa ( email )

2404 Maile Way, E-602e
Honolulu, HI 96822
United States
(808) 956-8063 (Phone)
(808) 956-9887 (Fax)

Zhao Yang

University of International Business and Economics (UIBE) ( email )

10, Huixin Dongjie
Changyang District
Beijing, Beijing 100029
China

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