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Enterprise Risk Management: Strategic Antecedents, Risk Integration and Performance
Year Of Publication: 2010
Month Of Publication: June
Pages: 41
Download Count: 26
View Count: 1620
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 7-25-2010
Publisher: Administrator
Summary
The current literature on the adoption of enterprise risk management (ERM) abstracts from the
issue of its strategic context. Accounting for the interplay between ERM and various individual
risk management (IRM) practices, this paper presents a theoretical basis to study the strategic
determinants, risk integration, and value creation of ERM. We tested hypotheses with data from
the US property and casualty (PC) insurance industry. Our results show that insurers with more
reinsurance purchase, higher derivative usage, and greater geographic diversification are more
likely to adopt ERM. After ERM initiation, the magnitude of certain IRM adjustments is
substantial. Interestingly, the market responds negatively to ERM adoption. ERM displays a
strong negative correlation with firm value with a discount of 11% (5%) in terms of Tobin's Q
(ROA).
Author(s)
Lin, Yijia Sign in to follow this author
Wen, Min-Ming Sign in to follow this author
Yu, Jifeng Sign in to follow this author
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