Authors: Lawrence
Source: J. Account. Public Policy 28 (2009) 301–327
Abstract
In recent years, a paradigm shift has occurred regarding the way organizations view risk management. Instead of looking at risk management from a silo-based perspective, the trend is to take a holistic view of risk management. This holistic approach toward managing an organization’s risk is commonly referred to as enterprise risk management (ERM). Indeed, there is growing support for the general argument that organizations will improve their performance by employing the ERM concept. The basic argument presented in this paper is that the relation between ERM and firm performance is contingent upon the appropriate match between ERM and the following five factors affecting a firm: environmental uncertainty, industry competition, firm size, firm complexity, and board of directors’ monitoring. Based on a sample of 112 US
會計是一門測量的科學與藝術，裡面一些變數的量測與操作型定義值得參考
不過跑進不同的領域，要讀懂別人的作品，還真是辛苦。
Introduction
The primary objective of the study reported in this paper is to examine empirically the argument that ERM is related to firm performance. We argue that the ERM-firm performance relation is contingent upon the appropriate match between a firm’s ERM system and several key firm-specific factors.
Based on the relevant literature, we identify five specific firm factors that are believed to have an impact on the ERM-firm performance relation. These factors are: (1) environmental uncertainty, (2) industry competition, (3) firm complexity, (4) firm size, and (5) board of directors’ monitoring. In pursuing the above objective, we also develop an ERM index. To our knowledge, we are the first to develop such an index.
賣點：發明創造了衡量企業風險的ERM index.
Basic argument and research design
The above notwithstanding, determining which are the key factors in the contingency relation between a firm’s ERM system and its performance is far from an exact science. In fact, there is no general theoretical framework or model that can predict the key factors influencing the relation between a firm’s ERM and its performance. However, based on the extant literature, there seems to be a parsimonious set of five factors that are critical to understanding the relation between ERM and firm performance.
These five factors are: environmental uncertainty, industry competition, firm size, firm complexity, and board of directors’ monitoring. The rationale underlying the selection of each of these factors is developed below.4
Environmental uncertainty (EU) creates difficulties for organizations due to the increasing unpredictability of the future events affecting the organization. Thus, the risks associated with a firm, and the appropriate response to such risks, will likely vary depending on the EU confronting the firm.
An ERM system, which is a subset of an organization’s management control system, is intended to identify and manage future uncertain events that may adversely affect an entity’s performance. Thus, EU is one of those mediating variables that will likely impact the ERM-Performance relation.
Industry competition is a fundamental concern to all organizations. At one end of the spectrum, there are many firms within an industry producing and/or selling similar products and/or services.
In such a case, the products and/or services of one firm are close substitutes for another firm. Competition for sales in this type of industry is often fierce, which in turn means that the firms in the industry face substantial risk of not earning a sustainable level of profits. At the other end of the spectrum, there is only one firm within an industry producing and/or selling products and/or services. To the extent the demand for the firm’s products and/or services exist in this latter industry, the firm’s risk of not earning a sustainable level of profits is relatively low.
The above noted literature suggests that there should be a positive relation between the size of a firm and its need for an ERM system. Furthermore, and more germane to the study contained in this paper, we anticipate that the ERM-performance relation will be dependent on the proper match (i.e., alignment) between the size of a firm and its ERM system.
Greater firm complexity (i.e., diversity of business transactions) will likely cause less integration of information and more difficulties in management control systems within an organization. Ge and McVay (2005) and Doyle et al. (2007), for example, find material weaknesses in internal controls (which are a key part of ERM systems) are more likely for firms that are more complex. In terms of directly considering an ERM system, Hoyt and Liebenberg (2009) find that complexity is positively related to the use of ERM.
COSO (2004) and Sobel and Reding (2004), note that an effective ERM system is dependent on active participation by an organization’s board of directors. Kleffner et al. (2003) found that adoption of an ERM strategy is associated with encouragement from the board of directors. Beasley et al. (2005) found that the proportion of independent board members is positively related to the stage of ERM adoption. In addition, the New York Stock Exchange (NYSE, 2003) Corporate Governance Rules include explicit requirements for NYSE registrants’ audit committees to assume specific responsibilities with respect to ‘‘risk assessment and risk management,” including risks beyond financial reporting.
The above noted literature suggests that there should be a positive relation between the monitoring by a firm’s board of directors and its use of an ERM system. Furthermore, and more germane to the study contained in this paper, we anticipate that the ERM-performance relation will be dependent on the proper match (i.e., alignment) between the monitoring by a firm’s board of directors and its ERM system.
2.2. Research design
這個部份的作法讓我見學受教了，
Eqs 1是解釋公司風險的大小亦或風險管理的有效性？(放了幾個回歸解釋變數：環境的不確定性、競爭態勢、公司複雜度、公司規模與CEO的關注)
Eqs2 則是用Eqs1的殘差來詮釋公司的績效表現
這兩個式子合體之後的邏輯=>殘留的風險越大，公司績效越好(高風險高報酬？)
不過個人有以下疑問：
為何不直接用公式1的五個變數+1個公司風險管理的變數來解釋財務績效？
3. Empirical study
3.1. Sample
The sample used for this study was derived from the US Security and Exchange Commission’s EDGAR database.
Based on the keywords searching process, 273 US
3.2. Measurement of variables
這部份也很值得參考
依據CAPM的基礎來定義公司的財務績效
用營業額、收入與R&D費用的變異來衡量環境的不確定性
Industry competition is measured as one minus the Herfindahl–Hirschman Index (1-HHI). The HHI is derived from the sum of squared market shares of all firms in the industry. The HHI measures the industry concentration, where less concentration means more competition.
用市佔率來評估此一市場是獨佔壟斷亦或完全境爭
As pointed out by Doyle et al. (2007), and Ge and McVay (2005), firm complexity is associated with the number of business segments within a firm. That is, more business segments are considered to increase a firm’s complexity. Accordingly, we used this factor as our measure of firm complexity for each firm. The actual number of segments for each firm were derived from Compustat data.
看公司有多少事業部/群，來衡量公司的複雜度
Firm size in this study is measured as the natural logarithm of average total assets (Compustat #6). This metric for size is commonly used in accounting studies (e.g., Francis et al., 2004; Ge and McVay, 2005). Market value, another frequently used measure for firm size, is not chosen to measure firm size because firm performance has been measured using the information about stock prices.
As noted earlier in the paper, the literature has established a relation between monitoring by the board of directors and ERM. The size of the board of directors is one of the factors that has been widely examined in the corporate governance literature (e.g., see Larcker et al., 2007). In this study, we define and measure a variable Monitoring by Board of Directors by dividing the number of directors for each firm by the natural logarithm of sales ((number of directors)/log(sales)).
看到這裡，感覺和猜測擔憂這幾個變數之間是否彼此之間具有關聯性，產生內生共線性的問題？
作者這裡又再Create了Risk的測量手法，這個式子（5）看起來又跟公式(1)有所衝突
策略風險的大小用銷售額與Beta係數的標準化變異來衡量
營運風險的大小用銷售額/資產&銷售額/員工數 來衡量
Reporting用Material Weakness +Auditor Opinion + Restatement的數目來轉換
Compliance用Auditor Fees/Total Assets、Settlement Net Gain (Loss)/Total Assets
我真是怕了這些搞會計的….
3.3. Testing method
As discussed in Section 2 of this paper, the relation between ERM and firm performance is viewed as being contingent on the proper match between a firm’s ERM and its environmental uncertainty, industry competition, size, complexity, and board of directors’ monitoring. Thus, following Gordon and Smith (1992), we derive the functional relation between the ERMI (which is used as a proxy for a firm’s ERM in Eq (1)), calculated from Eq. (5), and the five contingency factors for high performing firms. High performing firms are defined as those with an excess return greater than 2%.30 In total there are 53 high performing firms. The coefficients for the five contingency factors are derived based on these high performing firms. In other words, the high performing firms are used as the ‘‘best practice” (or benchmark) group of firms for deriving the relation between ERM and the five contingency variables.
Eq. (7) is used to estimate this relation for high performing firms, and Eq. (8) represents the estimated model
這個題目用多元回歸的方式來硬拼會是好的做法嗎？
以下直接看結果
4. Empirical results
作者分兩群來比較，不過兩群看不出有統計上的顯著差異
Performance 和ERMI、EU、CI、FS、MBD成正比，和FS成反比
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