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

64 Pages Posted: 20 Apr 2019 Last revised: 18 Jul 2023

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

Mackenzie Univ

David L. Eckles

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

Date Written: July 17, 2023

Abstract

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

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

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

Mackenzie Univ ( email )

Rua da Consolação, 930
Consolação
São Paulo, São Paulo 01302-907
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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