We have just completed a substantial review of literature relating to enterprise risk management (ERM) and how it influences firm performance and value.

Rationale

Many corporate governance codes and international standards like ISO 31000 and COSO claim that ERM has benefits.

The purpose of risk management is the creation and protection of value. It improves performance, encourages innovation and supports the achievement of objectives. (ISO 31000, 2018, emphasis added)

… integrating enterprise risk management practices throughout an entity helps to accelerate growth and enhance performance. (COSO, 2017, emphasis added)

We wanted to see whether there was evidence to support these claims.

The review

We report on 212 papers from around the world, a far more extensive review that any previous ones.

The papers here are not confined to internationally recognized peer-reviewed journals, nor to highly cited papers. Instead, a wider set of sources has been accessed, to increase the range of geographies, sectors and companies examined.

The outcomes

The 212 papers contained 285 individual findings. Overall, 195 (68%) of the findings show a positive relationship between ERM and firm performance at the 5% significance level or better, across a range of measures of ERM and performance. Only 13 findings (4.5%), from 11 papers, show a negative relationship. The remaining 27% provide outcomes that are inconclusive or not statistically significant.

Correlation and causation

Most of the findings are based on correlations. The small number of papers that address causation explicitly indicate that ERM adoption leads to better short-term performance, sometimes with a lag.

Our conclusions

Our review concludes that:

• There is generally a strong positive relationship between ERM implementation and firm value, across a wide range of contexts.

• There are many confounding factors that affect the exact form and strength of the relationship between ERM and value.

• There are limited but consistent indications that the relationship is causal, with sound ERM implementation leading to enhanced firm value.

More research is needed to demonstrate the value of ERM for non-corporate organizations.

Read the full review

The full review contains 16 tables and 16 figures, with references for all of the papers studied.

You can read the full review here, and download a pdf version..