Value relevance of enterprise risk management: the Indian case

Abstract

The global financial crisis (GFC) of 2008-2010 and myriads of banking frauds and accounting scandals following the Satyam debacle precipitated the need for improved corporate governance among Indian firms. Stakeholders began exploring new avenues of risk management practices. In this paper, we attempt to assess the role of ERM in value creation for companies listed on the Indian stock exchange. Ours is the first empirical study with a cross-sectional analysis for India and is among the very few ERM studies conducted for a developing country. Our analysis confirms the positive influence of the extent of ERM engagement on firm value. Among control variables, firm size had a negative impact on firm value, while financial leverage and profitability positively influenced firm value. This paper makes a strong case for ERM adoption and confirms its role as a wealth protector and creator in a developing country setting.