THE NEXUS OF ENTERPRISE RISK MANAGEMENT AND VALUE CREATION:A SYSTEMATIC LITERATURE REVIEW

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 enhancetheshareholder value (SHV). Increasing numbers ofre-searchers have studied the impact of ERM on a firms’value (value creation) and found a positive correlation,but ultimately fail to enlightenthe entirepic-ture because of the yet to be fully understood field of ERM as well asa 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 thenexus of ERM and VC and determineswhich quality articles and proxies for ERM and VC currently exist in litera-ture. Therefore, the authorssystematically 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 authorsde-scribe the empirical methodology and introducethe 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 authorsproposes the identificationof specific components and processes of ERM that contribute to firm value and evaluation of added benefit of ERM,compared to TRM. The authors further suggestthe solicitation of a same baseand scrutini-zation of profitabilitybased VC measurestowards a cash flow based approach.

Keywords

• risk
• finance
• enterprise risk management
• erm
• value creation