Enterprise Risk Management and Economies of Scale and Scope: Evidence from the German Insurance Industry

42 Pages Posted: 27 Nov 2018 Last revised: 12 Dec 2018

See all articles by Muhammed Altuntas

Muhammed Altuntas

University of Cologne - Department of Risk Management and Insurance

Thomas Berry-Stölzle

University of Iowa - Department of Finance

J David Cummins

Temple University - Risk Management & Insurance & Actuarial Science

Date Written: October 1, 2018

Abstract

Enterprise risk management (ERM) is the approach of managing all risks faced by an enterprise in an integrated, holistic fashion. This research investigates whether the utilization of the ERM approach helps firms achieve economies of scale and scope. We use detailed survey data of German property-liability insurance companies that allows us to construct continuous measures of ERM quality. We find that ERM quality positively moderates the size-scale efficiency relationship, and we find that ERM positively moderates the diversification-revenue scope efficiency relationship, indicating that ERM facilitates economies of scale and economies of scope with respect to revenue complementarities. We do not find any evidence of economies of scope with respect to cost complementarities. Our results suggest that ERM’s impact on economies of scale and scope is one answer to the question how ERM can create value.

Keywords: Enterprise Risk Management, Economies of Scale, Economies of Scope, Firm Efficiency, Insurance Industry

JEL Classification: G22, G32, L25

Suggested Citation

Altuntas, Muhammed and Berry-Stölzle, Thomas and Cummins, J. David, Enterprise Risk Management and Economies of Scale and Scope: Evidence from the German Insurance Industry (October 1, 2018). Fox School of Business Research Paper No. 18-048. Available at SSRN: https://ssrn.com/abstract=3277185 or http://dx.doi.org/10.2139/ssrn.3277185

Muhammed Altuntas

University of Cologne - Department of Risk Management and Insurance ( email )

Kerpener Str. 30
Cologne, D-50923
Germany

Thomas Berry-Stölzle (Contact Author)

University of Iowa - Department of Finance ( email )

Iowa City, IA 52242-1000
United States

J. David Cummins

Temple University - Risk Management & Insurance & Actuarial Science ( email )

Fox School of Business and Management
1801 Liacouras Walk.
Philadelphia, PA 19122
United States
215-204-8468 (Phone)
215-204-4712 (Fax)

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