The Valuation Implications of Enterprise Risk Management Maturity

Mark Farrell, Ronan Gallagher

Research output: Contribution to journalArticlepeer-review


Enterprise Risk Management (ERM) is the discipline by which enterprises
monitor, analyze, and control risks from across the enterprise, with the goal of
identifying underlying correlations and thus optimizing the risk-taking
behavior in a portfolio context. This study analyzes the valuation implications
of ERM Maturity. We use data from the industry leading Risk and Insurance
Management Society Risk Maturity Model over the period from2006 to 2011,
which scores firms on a five-point maturity scale. 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. Upon decomposition of the maturity
score, we find that the most important aspects of ERM from a valuation
perspective relate to the level of top–down executive engagement and the
resultant cascade of ERM culture throughout the firm. Firms that have
successfully integrated the ERM process into both their strategic activities and
everyday practices display superior ability in uncovering risk dependencies
and correlations across the entire enterprise and as a consequence enhanced
value when undertaking the ERM maturity journey ceteris paribus.
Original languageEnglish
Pages (from-to)625-657
JournalJournal of Risk and Insurance
Issue number3
Early online date10 Mar 2014
Publication statusPublished - Sep 2015


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