Enterprise risk management and firm value within China’s insurance industry

Abstract

Orientation: The article discusses the relationship between enterprise risk management (ERM) and firm value.

Research purpose: The purpose of the study is to empirically examine the relationship between ERM and firm value. The study is undertaken within the context of the Chinese insurance industry.

Motivation for the study: Recent attempts to link ERM with firm value have been undertaken primarily in the USA and Europe and have produced ambiguous and inconclusive findings.

Research design, approach and method: Data was obtained from the China Insurance Regulatory Commission, a government body responsible for regulating insurance products and services in China. The data sample consisted of 135 insurance companies operating in China (in 2010). Regression modelling is employed to analyse the data.

Main findings: The results show the relationship between ERM and firm value at first appears statistically significant within a Pearson correlation matrix but then falls below statistical significance on closer scrutiny through regression analysis. Accordingly, it is recommended that insurers in China should not look to aggressive investment in ERM as a strategy for producing quick gains in firm value.

Practical/managerial implications: Risk managers should plan ERM development from a risk management maturity perspective, which equates the highest level of ERM development with ERM’s capacity to improve firm resilience to the unknown and serve as a mechanism for strategic decision-making.

Contribution/value-add: The study employed return on equity as a proxy for firm value, utilising ordinary least squares regression modelling to test propositions of the relationships between variables.