Testing the effectiveness of ERM

Evidence from operational losses

Khalid Al-Amri, Yevgeniy Davydov

Research output: Contribution to journalArticle

Abstract

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.

Original languageEnglish
Pages (from-to)70-82
Number of pages13
JournalJournal of Economics and Business
Volume87
DOIs
Publication statusPublished - Sep 1 2016

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Testing
Enterprise risk management
Operational risk
Industry
Internal control
Severity
Firm risk
Hedge

Keywords

  • Corporate risk management
  • Enterprise Risk Management
  • Operational risk

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics

Cite this

Testing the effectiveness of ERM : Evidence from operational losses. / Al-Amri, Khalid; Davydov, Yevgeniy.

In: Journal of Economics and Business, Vol. 87, 01.09.2016, p. 70-82.

Research output: Contribution to journalArticle

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