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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