The Nexus of Enterprise Risk Management and Value Creation: Connecting the Dots and Finding the Blind Spots
O. Lehner - The Nexus of Enterprise Risk Management and Value Creation: Connecting the Dots and Finding the Blind Spots - Journal of Finance and Risk Perspectives, Vol. 1, No. 1, 2013, pp. 230-261
Abstract. Enterprise risk management (ERM) has emerged as a new paradigm for managing the portfolio of risks that face organizations and delivers syner-gic value by exploiting natural hedges. Proponents of ERM claim that ERM is designed to enhance the shareholder value (SHV). Increasing numbers of re-searchers have studied the impact of ERM on a firms’ value (value creation) and found a positive correlation, but ultimately fail to enlighten the entire pic-ture because of the yet to be fully understood field of ERM as well as a missing conceptualization of the nexus between ERM and Value Creation (VC). The lit-erature on ERM is still in a pre-paradigmatic state and executed quantitative studies are too early in the stage of the research field. This study proposes an updated research agenda to examine the nexus of ERM and VC and determines which quality articles and proxies for ERM and VC currently exist in litera-ture. Therefore, the authors systematically reviewed 25 articles regarding the ERM and VC nexus by coding the articles and later using a qualitative themat-ic analysis. First, the study provides an overview of theoretical background re-garding ERM development, frameworks and regulation. Then the authors de-scribe the empirical methodology and introduce the findings of the study. The study found a lack of reliable proxies, authors struggling to find the influencing ERM determinants and, thus, the inability to make a general statement on the value creating effect of ERM programs. Resulting of the findings, the authors proposes the identification of specific components and processes of ERM that contribute to firm value and evaluation of added benefit of ERM, compared to TRM. The authors further suggest the solicitation of a same base and scrutini-zation of profitability based VC measures towards a cash flow based approach.