Enterprise Risk Management and Its Effect on Firm Value in Turkey

Abstract

Enterprise Risk Management (ERM)is an integrated risk management approach, which considers risks in the context of business strategy and manages them with a portfolio perspective through well defined risk responsibilities and strong risk monitoring processes. The purpose of this study is to examine the impact of ERM on firm value for 130 firms operating in the manufacturing industry and listed in Borsa Istanbul. For this purpose, we utilized panel regression models on financial data collected in the period 2008-2013. The dependent variable is Tobin’s Q, which is used as a proxy of firm value. The independent variable is ERM implementation, whereas the control variables are firm size, leverage ratios and profitability ratios. We tested the hypothesis that there is a relationship between ERM and firm value. Our findings suggest that there seems to be no statistically significant relationship between firm value and ERM. We also employed a survey to explore how firms implement ERM and to obtain information about motivation behind adoption of ERM, challenges of ERM implementation and effects of ERM adoption.