The Effect of the Adoption of Enterprise Risk Management on Firm Value: Evidence from North American Energy and Natural Resources Sector

The failure of traditional risk management (TRM) during the 2008 financial crisis has led to the evolution of enterprise risk management (ERM) with a new integrative approach that seeks to manage risks holistically. ERM has attracted the interest of scholars, practitioners and many companies that started implementing the programme. Despite the increased attention on ERM, evidence on its effect on firm value is controversial. Another critical issue is the absence of information on the firm’s characteristics associated with its implementation. This study aims to examine the value of ERM programme and to investigate the influential factors that lead to its successful deployment. Considering that previous studies mainly targeted the insurance and financial service industry, the current research focuses on the North American energy and natural resources sector, which has received little attention in the literature. Unlike many studies that identified ERM adoption using secondary data and keyword search, this study used a comprehensive survey to obtain these data directly from the firms. The study also used the survey tool to collect data about ERM influential factors such as the presence of Chief Risk Officer (CRO), the board of directors monitoring and big four audit firms. Other research variables such as firm value proxy (Tobin’s Q) and some control variables (such as leverage, firm size, institutional ownership, sales growth and dividends) has been collected from annual reports and financial databases. The data of ERM and firm value model were analysed using Stepwise Multiple Regression. While data on ERM implementation determinants were analysed using Ordinal Logistic Regression. Based on the cross-sectional data collected from 137 organisations in six months, the study found a positive and significant relationship between ERM and firm value. Further, the ERM implementation determinants’ results indicated a positives relationship between boards of directors monitoring, CRO, risk culture, and an upper ERM implementation stage. Unexpectedly, the study found a significant negative relationship between leverage and ERM deployment in the firms. These findings suggest several courses of v action for C-suite executives at the North American energy and natural resources publicly traded firms, ERM implementers, risk culture policymakers, regulatory bodies and governments. The principal contribution of this study is that it support the Value Maximisation Theory and provides a strong empirical confirmation about the value of ERM. Secondly, the findings of the study provide a clearer insight into the factors which influence ERM successful implementation. Thirdly this research used a quantitative multimethod design which has not been identified before in ERM literature. Fourthly, the study used a highly reliable ERM measurement tool compared to the previous studies, which mainly used secondary data. Finally, this research is first of a kind in studying the value of ERM in the energy and natural resources sector in North America. In terms of future work, it would be interesting to repeat the experiments used in this research using a sample from a different industry with a particular focus on the COVID19 period.

Name dc:type.qualificationname

dba

Level dc:type.qualificationlevel

doctoral

Grantor dc:publisher.institution

University of Wales Trinity Saint David

Year dc:date.issued

2020

Author dc:creator

• Kinyar, Ali

Dc Identifier Grantnumber

UWTSD

OAI identifier oai:identifier

oai:repository.uwtsd.ac.uk:1643