Risk management and value creation: A reality test in public listed companies of an emerging capital market

• Main Authors: Ab. Wahab, Norlida, Ghazali, Zahiruddin
• Format: Monograph
• Language: English
• Published: Universiti Utara Malaysia 2013
• Subjects: HG Finance
• Online Access: http://repo.uum.edu.my/12755/1/NOR.pdf; http://repo.uum.edu.my/12755/
• Institution: Universiti Utara Malaysia

Organizations across all industries implement Enterprise Risk Management (ERM) because it can provide significant value.Many organizations try their best to implement ERM by integrating ERM in their business strategy.However, implementing ERM is not easy.It is a costly investment.The issue is, does this investment truly help the companies in creating or enhancing firm’s value? Only a few empirical studies have been conducted on the value relevance of ERM and most of them used Chief Risk Officer (CRO) hiring announcements as a proxy for ERM implementation. This study provides empirical evidence on the ERM value creation.It examines whether the ERM practices and corporate governance compliance can create value to Malaysian public listed companies (PLCs).The issuance of Malaysian Code on Corporate Governance (MCCG) 2000 which is linked to the Bursa Malaysia Listing Requirements in 2001 is used as a proxy for ERM implementation in PLCs. At a glance, comparative test result suggests that MCCG2007 does produce the desired outcome, as the non-financial leverage ratios are significantly lower after the implementation of MCCG2007.However, further examination reveals that MCCG2000 produces a better result as non-financial companies fir ms’ value has improved considerably upon the first code implementation. The results al so insinuate that there is a mixed effect on both set of samples on different variables of financial ratio and risk management aspect. Nonetheless, it can be concluded that the performance of both non-financial and financial companies has been improved upon the MCCGs implementation.Lastly, concerning the last objective of this study, it is found that each sample is influenced by different set of variables.The non-financial companies are influenced by almost all variables but produce less adjusted r-square compares to financial companies that are influenced by a single variable yet produces higher adjusted r-square.Plausible reasons for the differences to occur are environment and regulations within which they operate.