ERM usage and value premium for Norwegian firms

Abstract

This thesis examines the effect of risk management on firm value. We test our main hypothesis that the implementation of ERM provides a value premium relative to TRM usage. By identifying ERM and TRM usage in Norwegian firms we estimate the additional benefit of using the two risk-mitigating strategies by estimating different versions of Tobin’s Q as a proxy for firm value. We find statistically significant evidence indicating that ERM users are rewarded with a higher firm value. Further, we find no evidence that our results are explained by the occurrence of reverse causality. However, we do not find evidence suggesting that ERM users are successful in reducing the volatility of earnings or cash flow.