Enterprise risk management and firm value

: empirical analysis of listed Portuguese firms

Abstract

Enterprise risk management (ERM) has emerged as a comprehensive framework for managing a wide range of complex risks. This approach represents a significant change in how firms manage risks and has become an essential part of business operations. Both the literature and economic theory suggest that the implementation of ERM increases firm value and improves its performance. However, empirical evidence regarding its impact remains limited, and the results are inconsistent. The main objective of this master's final assignment is to contribute to the literature by examining the relationship between ERM implementation and firm value over an extended time horizon and across different industries, with a specific focus on Portugal, using a new proxy to measure the level of ERM implementation, based on the latest framework developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our analysis includes a sample of 14 companies that are part of the PSI of the Lisbon Stock Exchange, belonging to the non-financial sector, covering the period from 2017 to 2023. We build a regression model using the OLS methodology, where the explained variable is Tobin’s Q, used as a proxy to firm value, and the explanatory variable is an ERM Score, which represents the level of ERM implementation. The results show that ERM implementation does not have a significant impact on Tobin’s Q, meaning that the market neither recognizes nor reacts to different levels of ERM adoption as a competitive factor contributing to firm value. However, ERM implementation shows a positive and significant relationship with accounting performance, as measured by ROA. In other words, although ERM positively influences firms' accounting performance, it does not directly influence their market valuation. Regarding the determinants of ERM adoption, our findings reveal that firm size is a factor that positively and significantly influences the implementation of an ERM system.

Date of Award	10 Jul 2025
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Ricardo Cunha (Supervisor)