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The Benefit of Risk Reduction: A quantitative study on the effect of Enterprise Risk Management in the Nordic Market
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Business Administration.
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Business Administration.
2017 (English)Independent thesis Advanced level (professional degree), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

Coming off of the heels of the financial crisis, risk management has garnered a large spotlight in recent years, and created a need for research to be conducted into systems such as Enterprise Risk Management (ERM) and their effectiveness. For this reason, this study has the main and secondary purpose as follows: test the effect of enterprise risk management on risk (measured through stock return volatility) for a company within the Nordic Market, as well as specifically during the financial crisis, test the effect of enterprise risk management on risk (measured through stock return volatility), respectively.

Existing literature within the subject of ERM are mainly focused on the U.S. market, or on specific industries. Therefore, a knowledge gap exists both within the study of ERM’s effect on volatility, as well as ERM’s effect on other markets. To bridge this gap, this study focuses on the Nordic Market, comprising the countries of Sweden, Norway, Denmark, and Finland.

To accomplish the above objectives, a quantitative study is conducted on companies listed on the OMX Nasdaq Nordic List and Oslo Børs. The companies listed on the Nordic Market are surveyed for their implementation of an ERM system, with 70 unique companies responding (a response rate of roughly 12%). Stock return volatility is utilized as a proxy for risk, and is measured over a time period of 20 years, from 1996 to 2017, using the GARCH (1,1) model. The results show that the implementation of ERM has the desired effect of reducing average stock return volatility, thereby reducing risk for companies with such a system. The level of implementation is found to be non-significant in terms of benefit to companies, instead the initial implementation of ERM, in any form, being the deciding factor. For the secondary purpose, ERM is tested exclusively during the time period of 2007-2009 to see if it is effective at reducing volatility during a period of large volatility spikes, such as the financial crisis. The results are not significant, leading to the conclusion that ERM has no discernable impact on volatility exclusively during the financial crisis. 

Place, publisher, year, edition, pages
2017. , 85 p.
Keyword [en]
Enterprise Risk Management, ERM, Volatility, Risk, Risk Management, Nordic Market, Implementation, Financial Crisis, GARCH
National Category
Business Administration
Identifiers
URN: urn:nbn:se:umu:diva-136909OAI: oai:DiVA.org:umu-136909DiVA: diva2:1114741
External cooperation
Anonym
Presentation
2017-05-30, S201, Umeå, 09:11 (English)
Supervisors
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Available from: 2017-06-26 Created: 2017-06-25 Last updated: 2017-06-26Bibliographically approved

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CiteExportLink to record
Permanent link

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Cite
Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf