A new study relates the quality of a corporate enterprise risk management (ERM) program to the value of a corporation as measured by Tobin’s Q, a ratio that measures market value based on replacement cost.
The study found that companies showing “mature risk management practices” may have valuations of up to 25 percent more as a result.
Based on their findings, the authors of the study reported that “firms that have successfully integrated the ERM process into both their strategic activities and everyday practices display superior ability in uncovering risk dependencies and relationships across the entire enterprise and as a consequence enhanced value,” according to a RIMS press release.
The study’s authors, professors Mark Farrell of Queen’s University Management School of Belfast and Dr. Ronan Gallagher of the University of Edinburgh Business School used data compiled from RIMS’s Risk Maturity Model over the period from 2006 to 2011.
“Our results suggest that firms that have reached mature levels of ERM are exhibiting a higher firm value, as measured by Tobin’s Q. We find a statistically significant positive relation to the magnitude of 25 percent,” according to the authors.
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