Enterprise risk management and its effect on firm value in Turkey

Enterprise Risk Management (ERM) is an integrated risk management approach, which considers risks in the context of business strategy and manages them with a portfolio perspective through well defined risk responsibilities and strong risk monitoring processes. The purpose of this study is to examine the impact of ERM on firm value for 130 firms operating in the manufacturing industry and listed in Borsa Istanbul. To investigate the relationship between ERM and firm value. For this purpose, we utilized panel regression models on financial data collected in the period 2008-2013. The dependent variable is Tobin's Q, which is used as a proxy of firm value. The independent variable is ERM implementation, whereas the control variables are firm size, leverage ratios and profitability ratios. We tested the hypothesis that there is a relationship between ERM and firm value. Our findings suggest that there seems to be no statistically significant relationship between firm value and ERM. We also employed a survey to explore how firms implement ERM and obtain information about motivation behind adoption of ERM, challenges of ERM implementation and effects of ERM adoption etc. 26 of 29 manufacturing companies, which responded the survey questions seems to be implementing ERM. The key driving forces for ERM adoption seem to be request of Board of Directors and compliance with corporate governance principles. The most important changes observed with the implementation of ERM are compliance with corporate governance principles and more coordination with different areas responsible for risk management. The most important problems encountered in the implementation of ERM seem to be resistance to change and organizational structure or corporate culture discouraging ERM.