Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments July 11, 2006 erstellt
Description:
Enterprise risk management (ERM) is the process of analyzing the portfolio of risks facing the enterprise to ensure that the combined effect of such risks is within an acceptable stakeholder tolerance. While ERM adoption is on the rise, little academic research exists about the costs and benefits of ERM. Proponents of ERM claim that ERM is designed to enhance stakeholder welfare; however, portfolio theory suggests that costly ERM implementation would be unwelcome by shareholders who can use less costly diversification to eliminate idiosyncratic risk. This study examines equity market reactions to announcements of appointments of senior executive officers overseeing the enterprise's risk management processes. Based on a sample of 126 announcements from 1992-2003, we find that the univariate average two-day market response is not significant, suggesting that a broad definitive statement about the benefit or cost of implementing ERM is not possible. However, our multivariate analysis provides some initial empirical evidence showing that market responses to such appointments are significantly positively associated with a firm's size, extent of intangible assets, and prior earnings volatility, and negatively associated with the amount of slack and leverage on the balance sheet. These results hold only for our subsample of non-financial firms, but not for our sample of financial institutions. This differential result may be due to regulatory requirements for risk management affecting financial firms. Our results suggest that the costs and benefits of ERM are firm-specific