Question

“Does Enterprise Risk Management Increase Firm Value?”

Discuss the above statement, explaining the relevant theories.

Answer 1

ANS: Enterprise Risk Management (ERM) is a plan based business strategy that aims to identify & assess the disaster that may interfere the organisational operations & objectives.

ERM is an extension of traditional risk management as ERM involves managing all the risk affecting the organisational goals & objectives. ERM can improve the focus of directors & executives by providing data that enables better risk mitigation decisions. Moreover Risk management provides insight into insurance & allow the company to better focus on its business strategies.

Yes, Enterprise Risk Management Increase Firm Value because of the following reasons:-

• It allow coporate to use their debt
• Maintain their optimal capital budget over a period of time
• It avoid the cost associated to the financial distress
• Optimum comparative advantages in hedging
• Reduces tax from fluctuating earnings