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The drivers and value of enterprise risk management: evidence from ERM ratings

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Listed:
  • Alexander Bohnert
  • Nadine Gatzert
  • Robert E. Hoyt
  • Philipp Lechner

Abstract

In the course of recent regulatory developments, holistic enterprise-wide risk management (ERM) frameworks have become increasingly relevant for insurance companies. The aim of this paper is to contribute to the literature by analyzing determinants (firm characteristics) as well as the impact of ERM on the shareholder value of European insurers using the Standard & Poor’s ERM rating to identify ERM activities. This has not been done so far, even though it is of high relevance against the background of the introduction of Solvency II, which requires a holistic approach to risk management. Results show a significant positive impact of ERM on firm value for the case of European insurers. In particular, we find that insurers with a high quality risk management (RM) system exhibit a Tobin’s Q that on average is about 6.5% higher than for insurers with less high quality RM after controlling for covariates and endogeneity bias.

Suggested Citation

  • Alexander Bohnert & Nadine Gatzert & Robert E. Hoyt & Philipp Lechner, 2019. "The drivers and value of enterprise risk management: evidence from ERM ratings," The European Journal of Finance, Taylor & Francis Journals, vol. 25(3), pages 234-255, February.
    • Handle: RePEc:taf:eurjfi:v:25:y:2019:i:3:p:234-255
    DOI: 10.1080/1351847X.2018.1514314
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    Citations

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    Cited by:

    1. Sylvester Senyo Horvey & Jones Odei-Mensah, 2024. "Enterprise risk management and performance of the South African insurers: the moderating role of corporate governance," Risk Management, Palgrave Macmillan, vol. 26(4), pages 1-28, December.
    2. Müzeyyen Çiğdem Akbaş, 2024. "Measuring the impact of enterprise risk management on performance, value, and risk indicators of Borsa Istanbul XBANK companies with data mining prediction models," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-19, December.
    3. Evan M. Eastman & Jianren Xu, 2021. "Market reactions to enterprise risk management adoption, incorporation by rating agencies, and ORSA Act passage," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 24(2), pages 151-180, June.
    4. Nadine Gatzert & Philipp Reichel, 2022. "Awareness of climate risks and opportunities: empirical evidence on determinants and value from the U.S. and European insurance industry," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 47(1), pages 5-26, January.
    5. Ben Kajwang, 2022. "Theoretical review of enterprise risk management culture drivers for insurance firms in Kenya," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 11(5), pages 210-217, July.
    6. Nguyen, Duc Khuong & Vo, Dinh-Tri, 2020. "Enterprise risk management and solvency: The case of the listed EU insurers," Journal of Business Research, Elsevier, vol. 113(C), pages 360-369.
    7. Sorin Gabriel Anton & Anca Elena Afloarei Nucu, 2020. "Enterprise Risk Management: A Literature Review and Agenda for Future Research," JRFM, MDPI, vol. 13(11), pages 1-22, November.
    8. Nadine Gatzert & Madeline Schubert, 2022. "Cyber risk management in the US banking and insurance industry: A textual and empirical analysis of determinants and value," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 89(3), pages 725-763, September.
    9. Magdalena Zioło & Iwona Bąk & Anna Spoz, 2023. "Incorporating ESG Risk in Companies’ Business Models: State of Research and Energy Sector Case Studies," Energies, MDPI, vol. 16(4), pages 1-25, February.
    10. Alessandra Allini & Raffaela Casciello & Marco Maffei & Martina Prisco, 2022. "The national culture as a determinant of ERM quality: Empirical evidence in the European banking context," MANAGEMENT CONTROL, FrancoAngeli Editore, vol. 2022(1), pages 79-102.

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