The Relationship between Chief Risk Officers and Firm Value: Its Complicated

53 Pages Posted: 20 Apr 2019 Last revised: 5 Mar 2021

See all articles by Aldy Fernandes da Silva

Aldy Fernandes da Silva

Fundação Escola de Comércio Álvares Penteado (FECAP)

Vinicius Brunassi Silva

Fundação Escola de Comércio Álvares Penteado (FECAP)

Joelson Oliveira Sampaio

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics

Juliano Silva

Fundação Escola de Comércio Álvares Penteado (FECAP)

David L. Eckles

University of Georgia - Department of Insurance, Legal Studies, Real Estate

Date Written: March 20, 2020

Abstract

We study the relationship between enterprise risk management and firm value. We analyze how the influence, reporting, and compensation incentives of the chief risk officer (CRO) contribute to firm value. We use data from U.S. publicly traded insurers between 2009 and 2017 and find that the existence of a CRO alone is insufficient for value creation in insurers. Our results suggest a negative relationship between a CRO and firm value. However, we find empirical evidence of a positive relationship between firm value and including the CRO in the compensation committee of the board and providing the CRO with an equity-based compensation plan. Moreover, we propose two scores meant to isolate the participation of the CRO from other ERM proxies on value creation. Using these scores, we confirm a negative relationship between CRO and firm value and a positive relationship between firm value and the utilization of the CRO.

Keywords: Enterprise risk management; Chief risk officer; Compensation; Firm value; Insurance industry

JEL Classification: G22; G32

Suggested Citation

da Silva, Aldy Fernandes and Brunassi Silva, Vinicius Augusto and Sampaio, Joelson Oliveira and Silva, Juliano Rodrigues and Eckles, David L., The Relationship between Chief Risk Officers and Firm Value: Its Complicated (March 20, 2020). Available at SSRN: https://ssrn.com/abstract=3355854 or http://dx.doi.org/10.2139/ssrn.3355854

Aldy Fernandes Da Silva

Fundação Escola de Comércio Álvares Penteado (FECAP) ( email )

Av. Liberdade, 532
Liberdade
São Paulo
Brazil

Vinicius Augusto Brunassi Silva (Contact Author)

Fundação Escola de Comércio Álvares Penteado (FECAP) ( email )

Av. Liberdade, 532
Liberdade
São Paulo, SP 01502-001
Brazil
+551199518-5913 (Phone)

Joelson Oliveira Sampaio

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics ( email )

Brazil

HOME PAGE: http://eesp.fgv.br/

Juliano Rodrigues Silva

Fundação Escola de Comércio Álvares Penteado (FECAP) ( email )

Av. Liberdade, 532
Liberdade
São Paulo
Brazil
5511993893249 (Phone)

David L. Eckles

University of Georgia - Department of Insurance, Legal Studies, Real Estate ( email )

Athens, GA 30602-6254
United States

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