Abandoning Silos for Integration: Implementing Enterprise Risk Management and Risk Governance

University dissertation from Lund University School of Economics and Management, Department of Business Administration

Abstract: Firms began to abandon the “silo” approach to risk management for more integration in the risk management system. Enterprise risk management (ERM) emerged as a framework for the management of integrated risks in a strategy setting supported by risk governance. Practically and empirically there has been no real consensus about what an ERM firm looks like. ERM frameworks provide a variety of conceptualizations of ERM, and empirically there are numerous ways of measuring and identifying ERM. There has been a stagnant and inconsistent development of the theoretical foundations of ERM, and empirically there has been inconsistent evidence on the determinants and value of ERM. Though there has been momentum in exploring enterprise risk management, there is a continuing lack of consensus which this dissertation approaches by answering the following questions: What does an ERM firm look like? Why do firms implement ERM? What effect does ERM have on the firm? The first article explores what an ERM firm looks like and identifies four underlying pillars of ERM based on how firms actually implement ERM dimensions. The identifying component of ERM implementation is the holistic organization of risk management - the implementation of risk governance. The second article uses this new conceptualization of ERM to investigate why firms take the step beyond traditional risk management and implement risk governance. Determinants of risk governance implementation are found to be the size of the firm, leverage and dividend payments, and the chief executive officer’s influence on the board. The final article proposes that the reduction of credit risk may be a new way to measure the success of ERM in firms; the findings suggest that credit default swap spreads are significantly and negatively related to ERM implementation in banks while credit ratings are not significantly related to ERM when overall corporate governance is controlled for.