TY - JOUR
T1 - Testing the effectiveness of ERM
T2 - Evidence from operational losses
AU - Al-Amri, Khalid
AU - Davydov, Yevgeniy
N1 - Publisher Copyright:
© 2016 Elsevier Inc.
PY - 2016/9/1
Y1 - 2016/9/1
N2 - Enterprise Risk Management (ERM) provides a novel approach to managing all risks faced by a firm as a portfolio. By forming a portfolio of risks firms can optimally choose strategies to hedge their overall risk. This study investigates ERM implementation across a broad spectrum of industries. In particular, we examine the effectiveness of ERM in improving firm internal controls by its impact on operational risk. Our findings suggest that ERM is effective in reducing both the frequency and severity of operational risk events. We find that firms with ERM programs on average experience a 63% reduction in the frequency of operational risk events and up to a 35% reduction in operational losses. The findings still hold after controlling for endogenous selection.
AB - Enterprise Risk Management (ERM) provides a novel approach to managing all risks faced by a firm as a portfolio. By forming a portfolio of risks firms can optimally choose strategies to hedge their overall risk. This study investigates ERM implementation across a broad spectrum of industries. In particular, we examine the effectiveness of ERM in improving firm internal controls by its impact on operational risk. Our findings suggest that ERM is effective in reducing both the frequency and severity of operational risk events. We find that firms with ERM programs on average experience a 63% reduction in the frequency of operational risk events and up to a 35% reduction in operational losses. The findings still hold after controlling for endogenous selection.
KW - Corporate risk management
KW - Enterprise Risk Management
KW - Operational risk
UR - http://www.scopus.com/inward/record.url?scp=84989930744&partnerID=8YFLogxK
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U2 - 10.1016/j.jeconbus.2016.07.002
DO - 10.1016/j.jeconbus.2016.07.002
M3 - Article
AN - SCOPUS:84989930744
SN - 0148-6195
VL - 87
SP - 70
EP - 82
JO - Journal of Economics and Business
JF - Journal of Economics and Business
ER -