Enterprise Risk Management, External Financing and Corporate Investment

66 Pages Posted: 16 Feb 2024

See all articles by Thomas Berry-Stölzle

Thomas Berry-Stölzle

University of Iowa - Department of Finance

Xin Che

California State University, Fullerton

Jianren Xu

University of North Texas

Date Written: July 19, 2019

Abstract

Does Enterprise Risk Management (ERM) affect the real economy? Our study sheds light on this fundamental question by investigating whether ERM improves firms’ investment efficiency. ERM programs are designed to improve the identification of risk, to promote the awareness of all sources of risk, and to align strategic and operational decision-making within the firm’s risk appetite. We predict that a stronger risk management function based on the ERM approach facilitates access to external financing and mitigates underinvestment. Our results support that view. We find that firms with an ERM program invest more in settings prone to underinvestment and issue more debt in these circumstances while equity issuances are less pronounced.

Keywords: Enterprise Risk Management, Corporate Investment, External Financing

JEL Classification: G10, G31, G32, D81, M41

Suggested Citation

Berry-Stölzle, Thomas and Che, Xin and Xu, Jianren, Enterprise Risk Management, External Financing and Corporate Investment (July 19, 2019). Available at SSRN: https://ssrn.com/abstract=4712244 or http://dx.doi.org/10.2139/ssrn.4712244

Thomas Berry-Stölzle

University of Iowa - Department of Finance ( email )

Iowa City, IA 52242-1000
United States

Xin Che (Contact Author)

California State University, Fullerton ( email )

800 N State College St
Fullerton, CA 92831
United States

Jianren Xu

University of North Texas ( email )

1155 Union Circle #305340
Denton, TX 76203
United States

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