engleski

Does Enterprise Risk Management Determine Profitability, Liquidity, And Stability - Indicative Evidence from US Market

The study is exploring the impact of ERM on the financial performance and value of the observed nonfinancial companies, with a particular emphasis on the period of financial crisis. We find evidence that longer ERM usage has a positive effect on the company's fundamental value, what is consistent with the ERM goal to increase the likelihood that strategic objectives are realized and shareholders' value is enhanced. The results of this study reveal that each additional year of ERM usage increases company's free cash flow implying that ERM is a value-added activity. The study finds a significant change in investors' behavior. Before the crisis, each additional year of using ERM increased Tobin's Q and M/B. Afer the crisis, investors put a small premium only in a short period upon implementation of ERM (c. 2.7 years), afer which a firm's value is reduced with each additional year of ERM usage.

enterprise risk management ; value creation ; financial performance ; strategy execution ; global financial crisis

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