Enterprise Risk Management and the Cost of Capital

Enterprise Risk Management and the Cost of Capital

Enterprise risk management (ERM) is a process that manages all risks in an integrated, holistic fashion by controlling and coordinating any offsetting risks across the enterprise. This research investigates whether the adoption of the ERM approach affects firms' cost of equity capital. We restr...

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Veröffentlicht in:The Journal of risk and insurance 2018-03, Vol.85 (1), p.159-201
Hauptverfasser: Berry-Stölzle, Thomas R., Xu, Jianren
Format: Artikel
Sprache:eng
Schlagworte:
Capital costs
Economic aspects
Enterprise risk management
Information technology services industry
Insurance industry
Risk management
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container_title The Journal of risk and insurance
container_volume 85
creator Berry-Stölzle, Thomas R.
Xu, Jianren
description Enterprise risk management (ERM) is a process that manages all risks in an integrated, holistic fashion by controlling and coordinating any offsetting risks across the enterprise. This research investigates whether the adoption of the ERM approach affects firms' cost of equity capital. We restrict our analysis to the U.S. insurance industry to control for unobservable differences in business models and risk exposures across industries. We simultaneously model firms' adoption of ERM and the effect of ERM on the cost of capital. We find that ERM adoption significantly reduces firm's cost of capital. Our results suggest that cost of capital benefits are one answer to the question how ERM can create value.
doi_str_mv 10.1111/jori.12152
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source Jstor Complete Legacy; Wiley Online Library Journals Frontfile Complete; EBSCOhost Business Source Complete
subjects Capital costs
Economic aspects
Enterprise risk management
Information technology services industry
Insurance industry
Risk management
title Enterprise Risk Management and the Cost of Capital
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