Risk management and firm value: recent theory and evidence
International Journal of Accounting & Information Management
ISSN: 1834-7649
Article publication date: 7 March 2016
Abstract
Purpose
This paper aims to provide an update to the risk management literature, as it compiles a survey of 65 recent theoretical and empirical studies on the topic.
Design/methodology/approach
This is a survey paper that summarizes recent theoretical and empirical research regarding the relationship between risk management and firm value.
Findings
Recent empirical evidence provides support for theoretical propositions in the literature that risk management increases firm value and returns, while reducing return and cash flow volatility. The results are largely consistent with early findings, and there have been significant empirical advances that address concerns regarding the endogeneity of risk management practices relative to corporate financial decisions. The literature has become broader and deeper, as there are now studies with larger sample sizes across more industries and geographic areas.
Practical implications
Firms that use sound risk management practices obtain higher valuations, achieve better financial performance and experience diminished costs of financial distress. Recent research has emerged regarding enterprise risk management and its potential for value creation and risk reduction.
Originality/value
The paper provides a new compilation and synthesis of recent theoretical and empirical research in risk management that addresses many of the limitations of prior research.
Keywords
Acknowledgements
The authors would like to thank the Editor, Chunhui (Maggie) Liu, and an anonymous referee for their insightful comments and suggestions that improved the paper substantially. Krause received support for this research from the Black School of Business at Penn State Erie – The Behrend College.
Citation
Krause, T.A. and Tse, Y. (2016), "Risk management and firm value: recent theory and evidence", International Journal of Accounting & Information Management, Vol. 24 No. 1, pp. 56-81. https://doi.org/10.1108/IJAIM-05-2015-0027
Publisher
:Emerald Group Publishing Limited
Copyright © 2016, Emerald Group Publishing Limited