Testing Trade-Off and Pecking Order Predictions about Dividends and Debt

This paper investigates whether a relationship exists between the extent of implementation of enterprise risk management (ERM) systems and the performance of Italian listed companies. While many contributions in the literature focus on the determinants of ERM adoption and use one-dimensional feature to proxy for ERM implementation, we detect the consequences of ERM implementation and capture a variety of features to measure the sophistication of the ERM system. The results show that firms with advanced levels of ERM implementation present higher performance, both as financial performance and market evaluation. Additional tests also corroborate the expectation that effective ERM systems lead to higher performance by reducing risk exposure and that reverse causality between ERM and performance is not present in the short term. The study provides a twofold contribution to the ERM literature. First, it introduces new and more complete measures for ERM implementation, concerning not only corporate governance bodies dedicated to risk management, but also the characteristics of the risk assessment process. Moreover, it provides evidence of a positive relationship between ERM implementation and firm performance in an under-investigated context such as Italy.

Enterprise risk management and firm performance: The Italian case

The impact of enterprise risk management on competitive advantage by moderating role of information technology

In the current turbulent market, firms spend lots of tangible and intangible resources to gain competitive advantage and superior performance. Prior studies have discussed several determinants of competitive advantage and performance, particularly in developed economies, whereas small- and medium-sized enterprises (SMEs) in emerging economies have received minor attention. This study examines the mediating role of competitive advantage between enterprise risk management practices and SME performance and the moderating role of financial literacy between enterprise risk management practices and competitive advantage. A structured questionnaire is used to collect data from 304 SMEs operating in the emerging market of Pakistan. The hypotheses of the proposed study are tested through Structural Equation Modeling (SEM) in Analysis of a Moment Structures (AMOS). The results indicate that enterprise risk management practices significantly influence competitive advantage and SME performance. Competitive advantage partially mediates the relationship between enterprise risk management practices and SME performance. Additionally, financial literacy significantly moderates the relationship between enterprise risk management practices and competitive advantage. Firms are advised to implement formal enterprise risk management practices to gain competitive advantage and superior performance. Top managers need to have enough financial education that they will be able to perform risk management practices in an efficient way to gain a competitive position in the market. Implications for practices have been discussed in detail.

https://www.econstor.eu/bitstream/10419/238894/1/1030127859.pdf

Enterprise Risk Management Practices and Firm Performance, the Mediating Role of Competitive Advantage and the Moderating Role of Financial Literacy

We examine a channel through which corporate social responsibly affects firm performance. More specifically, we modeled the mediating role of enterprise risk management between corporate social responsibility and firm performance. We use the weighted average of environmental, social, and governance scores (as a proxy of corporate social responsibility) extracted from DataStream of Thomson Reuters‐ASSET4. Drawing on the stakeholder theory and using a large sample of 1021 Asia Pacific firms throughout 2006–2016, we show that corporate social responsibly is positively associated with firm performance. Our results suggest that corporate social responsibly is linked to enterprise risk management. However, the effect of corporate social responsibly on firm performance is both direct and indirect. We provide evidence that enterprise risk management partially mediates the relationship between corporate social responsibility and firm performance. We account for the issue of endogeneity and use alternative measures of firm performance for a robustness check. The findings offer important implications of socially responsible business processes through leveraging on the significance of enterprise risk management.

Corporate social responsibility engagement and firm performance in Asia Pacific: The role of enterprise risk management

Enterprise Risk Management (ERM) is the discipline by which enterprises monitor, analyze, and control risks from across the enterprise, with the goal of identifying underlying correlations and thus optimizing the risk-taking behavior in a portfolio context. This study analyzes the valuation implications of ERM Maturity. We use data from the industry leading Risk and Insurance Management Society Risk Maturity Model over the period from 2006 to 2011, which scores firms on a five-point maturity scale. Our results suggest that firms that have reached mature levels of ERM are exhibiting a higher firm value, as measured by Tobin's Q. We find a statistically significant positive relation to the magnitude of 25 percent. Upon decomposition of the maturity score, we find that the most important aspects of ERM from a valuation perspective relate to the level of top–down executive engagement and the resultant cascade of ERM culture throughout the firm. Firms that have successfully integrated the ERM process into both their strategic activities and everyday practices display superior ability in uncovering risk dependencies and correlations across the entire enterprise and as a consequence enhanced value when undertaking the ERM maturity journey ceteris paribus.

/pdf/the-valuation-implications-of-enterprise-risk-management-1v09tn4g7n.pdf

The Valuation Implications of Enterprise Risk Management Maturity

The aim of this research was to look at the emergence of wearable technology and the internet of things (IoT) and their current and potential use in the health and care area. There is a wide and ever-expanding range of wearables, devices, apps, data aggregators and platforms allowing the measurement, tracking and aggregation of a multitude of health and lifestyle measures, information and behaviours. The use and application of such technology and the corresponding richness of data that it can provide bring the health and care insurance market both potential opportunities and challenges. Insurers across a range of fields are already engaging with this type of technology in their proposition designs in areas such as customer engagement, marketing and underwriting. However, it seems like we are just at the start of the journey, on a learning curve to find the optimal practical applications of such technology with many aspects as yet untried, tested or indeed backed up with quantifiable evidence. It is clear though that technology is only part of the solution, on its own it will not engage or change behaviours and insurers will need to consider this in terms of implementation and goals. In the first weeks of forming this working party, it became evident that the potential scope of this technology, the information already out there and the pace of development of it, is almost overwhelming. With many yet-unanswered questions the paper focuses on pulling together in one place relevant information for the consideration of the health and care actuary, and also to open the reader’s eyes to potential future innovations by drawing on use of the technology in other markets and spheres, and the “science fiction–like” new technology that is just around the corner. The paper explores:
 an overview of wearables and IoT and available measures,examples of how this technology is currently being used,data considerations,risks and challenges,future technology developments andwhat this may mean for the future of insurance.
 Insurers who engage now are likely to be on an evolving business case model and product development journey, over which they can build up their understanding and interpretation of the data that this technology can provide. An exciting area full of potential – when and how will you get involved?

/pdf/wearables-and-the-internet-of-things-considerations-for-the-4sh6ecrnp4.pdf

Wearables and the Internet of Things - Considerations for the life and health insurance industry

https://www.pure.ed.ac.uk/ws/files/76663897/ERMManuscriptResubmittedtoRIBAF.pdf

Moderating influences on the ERM maturity-performance relationship

A health risk score was created to investigate the possibility of using data provided by wearable technology to help predict overall health and mortality, with the ultimate goal of using this score to enhance the pricing of health or life insurance. Subjects were categorized into low‐, increased‐, and high‐risk groups, and after results were adjusted for age and sex, Cox proportional hazards analysis revealed a high level of significance when predicting mortality. High‐risk subjects were shown to have a hazard ratio of 2.1 relative to those in the low‐risk group, which can be interpreted as an equivalent increase in age of 7.8 years. Our findings help to demonstrate the predictive capabilities of potential new rating factors, measured via wearables, that could feasibly be incorporated into actuarial insurance pricing models. The model also provides an initial step for insurers to begin to consider the incorporation of continuous wearable data into current risk models. With this in mind, an emphasis is placed on the limitations of the study in order to highlight the areas that must be addressed before incorporating aspects of this model within current pricing models.

Mark Farrell

Papers

The Valuation Implications of Enterprise Risk Management Maturity

Wearables and the Internet of Things - Considerations for the life and health insurance industry

Moderating influences on the ERM maturity-performance relationship

A Conceptual Model for Pricing Health and Life Insurance Using Wearable Technology

Why a Mature ERM Effort is Worth the Investment