The effect of enterprise risk management on corporate risk management

Abstract

We investigate the effect of enterprise risk management (ERM) on corporate risk management. We focus our analysis on U.S. publicly traded insurance companies between 2000 and 2016 to reduce unobservable differences across industries and to construct a more complete measure of corporate risk management. We simultaneously model the determinants of ERM adoption and the effect of ERM on corporate risk management. We find that ERM adoption increases firm's overall corporate risk management. When we analyze insurance and derivatives separately, ERM firms are utilizing more derivatives but less insurance.