Do Chief Risk Officers’ Committee Participation and Compensation Relate to Firm Value? An Empirical Investigation of the Insurance Industry

This paper studies channels by which chief risk officers (CROs) affect firm value. We first suggest the presence of a CRO is insufficient to create value. We then consider separate channels through which CROs may influence firm value. We introduce a number of CROspecific characteristics finding CROs participating on the compensation committee and CROs with equity-based compensation are associated with higher firm value. In order to isolate differences between naming a CRO and active CRO participation, we then introduce an alternative scoring mechanism for studying CRO and value creation. We first document a negative association between the presence of CROs and firm value. We show that including the CRO on the compensation committee and aligning CRO compensation with firm performance (e.g., with equity-based compensation plans) provides a value-increasing channel for firms. Ultimately, our analysis shows that appointing a position entitled Chief Risk Officer is insufficient to create value.

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

JEL Classification: G22; G32

Suggested Citation: Suggested Citation

da Silva, Aldy Fernandes and Brunassi Silva, Vinicius Augusto and Sampaio, Joelson Oliveira and Silva, Juliano Rodrigues and Eckles, David L., Do Chief Risk Officers’ Committee Participation and Compensation Relate to Firm Value? An Empirical Investigation of the Insurance Industry (July 17, 2023). Available at SSRN: https://ssrn.com/abstract=3355854 or http://dx.doi.org/10.2139/ssrn.3355854