The Nexus of Enterprise Risk Management and Value Creation: a Systematic Literature Review

Enterprise risk management (ERM) has emerged as a new paradigm for managing the portfolio of risks that face organizations and delivers synergic value by exploiting natural hedges. Proponents of ERM claim that ERM is designed to enhance the shareholder value (SHV). Increasing numbers of researchers have studied the impact of ERM on a firms’ value (value creation) and found a positive correlation, but ultimately fail to enlighten the entire picture because of the yet to be fully understood field of ERM as well as a missing conceptualization of the nexus between ERM and Value Creation (VC). The literature 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 the nexus of ERM and VC and determines which quality articles and proxies for ERM and VC currently exist in literature. Therefore, the authors systematically reviewed 25 articles regarding the ERM and VC nexus by coding the articles and later using a qualitative thematic analysis. First, the study provides an overview of theoretical background regarding ERM development, frameworks and regulation. Then the authors describe the empirical methodology and introduce the 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 authors proposes the identification of specific components and processes of ERM that contribute to firm value and evaluation of added benefit of ERM, compared to TRM. The authors further suggest the solicitation of a same base and scrutinization of profitability based VC measures towards a cash flow based approach.