Enterprise Risk Management and Firm Operations: Evidence from Inventory Management

52 Pages Posted: 28 Apr 2023 Last revised: 28 Jul 2023

See all articles by Mehdi Shadaei

Mehdi Shadaei

Goucher College - Goucher College

Jianren Xu

University of North Texas

Date Written: March 26, 2023

Abstract

Enterprise Risk Management (ERM) is a program that manages all firm risks in an integrated framework. In this study, we provide the first empirical evidence of how ERM affects firms’ day-to-day operations. Using hand-collected ERM data and inventory information, we examine whether ERM adoption improves firms’ inventory management. We find that firms with an ERM program experience an increase in their inventory turnover ratios. The increase is stronger among firms with greater operational risk, with sub-optimal environment for innovation, and with greater information environment uncertainty, and when firms’ ERM program becomes more mature. Our results hold when using hand-collected inventory impairments as an additional measure of inventory management. This study documents ERM’s real economic benefits to firms’ operations and highlights how ERM contributes to operating performance.

Keywords: Enterprise Risk Management, Firm Operations, Inventory Management

JEL Classification: G30, G31, G32, M41

Suggested Citation

Shadaei, Mehdi and Xu, Jianren, Enterprise Risk Management and Firm Operations: Evidence from Inventory Management (March 26, 2023). Available at SSRN: https://ssrn.com/abstract=4429714 or http://dx.doi.org/10.2139/ssrn.4429714

Mehdi Shadaei

Goucher College - Goucher College

1021 Dulaney Valley Road
Baltimore, MD 21204

Jianren Xu (Contact Author)

University of North Texas ( email )

1155 Union Circle #305340
Denton, TX 76203
United States

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