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
Date Written: July 17, 2023
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