Empirical Analysis of Joint Impact of Enterprise Risk Management (ERM) and Corporate Governance (CG) on Firm Value

33 Pages Posted: 13 Jun 2021

Date Written: May 19, 2016

Abstract

This paper analyzes simultaneity and endogeneity of ERM and Corporate Governance. It assesses quantitative relationship between Corporate Governance, ERM and value of the firm. The research results provide quantitative justifications for the boards to make investments in ERM and Corporate Governance initiatives for improved shareholder wealth. 3SLS-IV system modeling was applied on 2004-11 data of Gulf Cooperation Council financial institutions. Our research confirms the simultaneity and endogeneity of Corporate Governance, ERM and Firm Value determinants. Firm value is jointly and positively impacted by ERM & Corporate Governance initiatives although the impact was less significant. Unexpectedly, ERM initiative was significantly and negatively impacted by determinants such as intangibility, and profitability. Firm size was the only determinant that showed significant and positive impact on firm value. Relative to UAE the corporate governance mechanism was active in Bahrain, Saudi Arabia, Kuwait and Oman firms. Further, the existence of audit committees in the GCC firm’s boards and ERM adoption significantly positively impacted the corporate governance by 3.42% and 1.7239% respectively.

Keywords: Corporate Governance, Enterprise Risk Management, Firm Value, Simultaneity, Endogeneity, Gulf Cooperation Council (GCC) economies

JEL Classification: C15, C21, C51, D57, F30, G21, G32, G34, K22, L21, M31, M41, N25, O16

Suggested Citation

Rao, Ananth, Empirical Analysis of Joint Impact of Enterprise Risk Management (ERM) and Corporate Governance (CG) on Firm Value (May 19, 2016). Available at SSRN: https://ssrn.com/abstract=3849160 or http://dx.doi.org/10.2139/ssrn.3849160

Ananth Rao (Contact Author)

University of Dubai ( email )

New Academic City
Al Ruwayya-1
Dubai, DUBAI 14143
United Arab Emirates
97145566901 (Phone)

HOME PAGE: http://www.ud.ac.ae

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