Enterprise Risk Management and the Cost of Capital

43 Pages Posted: 20 Feb 2018

See all articles by Thomas Berry-Stölzle

Thomas Berry-Stölzle

University of Iowa - Department of Finance

Jianren Xu

California State University, Fullerton - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: March 2018

Abstract

Enterprise risk management (ERM) is a process that manages all risks in an integrated, holistic fashion by controlling and coordinating any offsetting risks across the enterprise. This research investigates whether the adoption of the ERM approach affects firms' cost of equity capital. We restrict our analysis to the U.S. insurance industry to control for unobservable differences in business models and risk exposures across industries. We simultaneously model firms' adoption of ERM and the effect of ERM on the cost of capital. We find that ERM adoption significantly reduces firm's cost of capital. Our results suggest that cost of capital benefits are one answer to the question how ERM can create value.

Suggested Citation

Berry-Stölzle, Thomas and Xu, Jianren, Enterprise Risk Management and the Cost of Capital (March 2018). Journal of Risk and Insurance, Vol. 85, Issue 1, pp. 159-201, 2018, Available at SSRN: https://ssrn.com/abstract=3124660 or http://dx.doi.org/10.1111/jori.12152

Thomas Berry-Stölzle (Contact Author)

University of Iowa - Department of Finance ( email )

Iowa City, IA 52242-1000
United States

Jianren Xu

California State University, Fullerton - Department of Finance ( email )

PO Box 34080
Fullerton, CA 92834-9480
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
2
Abstract Views
497
PlumX Metrics