Title page for ETD etd-03192012-083600


Type of Document Dissertation
Author Leece, Ryan Don
Author's Email Address rdleece@vt.edu
URN etd-03192012-083600
Title Enterprise Risk Management, Earnings Predictability and the Cost of Debt
Degree PhD
Department Accounting and Information Systems
Advisory Committee
Advisor Name Title
Maher, John J. Committee Chair
Brown, Robert M. Committee Member
Brozovsky, John A. Committee Member
Ince, Ozgur S. Committee Member
Oler, Mitchell J. Committee Member
Keywords
  • Textual Analysis
  • Analysts’ Forecasts
  • Earnings Predictability
  • Risk Management
Date of Defense 2012-03-14
Availability restricted
Abstract
The extant academic literature considers enterprise risk management (ERM) to be the fundamental paradigm for managing the portfolio of risks confronting organizations. However, there is debate as to whether ERM actually enhances stakeholder value. This study investigates whether ERM is associated with increased earnings predictability and a lower risk of firm failure, two theoretical predications regarding ERM’s impact on stakeholder value.

My research utilizes the Security and Exchange Commission’s (SEC) enhanced proxy statement disclosures as of February 28th, 2010 to measure ERM performance. Additionally, in order to quantify the operational construct, textual analysis is performed to develop a measure of ERM performance to be used in econometric analyses.

The analyses presented in this paper investigate whether key predicted benefits of ERM are observable. Results support the proposition that ERM is associated with increased earnings predictability. Specifically, earnings and accruals are found to be more persistent for firms with better ERM performance. Additionally, analysts’ earnings forecasts are more accurate in the presence of enhanced ERM performance. Results are inconclusive with regards to ERM’s ability to influence the risk of firm failure during this study’s sample period (i.e., 2007-2009). One explanation for this departure, the economic volatility during the financial crisis of 2008-2009, may make it difficult to empirically detect the relationship between ERM performance and the risk of firm failure.

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