The Adoption and Design of Enterprise Risk Management Practices: An Empirical Study

34 Pages Posted: 14 Aug 2010 Last revised: 25 Jan 2012

See all articles by Leen Paape

Leen Paape

Nyenrode Business University

Roland F. Spekle

Nyenrode Business University

Date Written: January 20, 2011

Abstract

We examine (1) the extent of ERM implementation and the factors that are associated with cross-sectional differences in the level of ERM adoption, and (2) specific risk management design choices and their effect on perceived risk management effectiveness. Broadly consistent with previous work in this area, we find that the extent of ERM implementation is influenced by the regulatory environment, internal factors, ownership structure, and firm and industry-related characteristics. In addition, we find that perceived risk management effectiveness is associated with the frequency of risk assessment and reporting, and with the use of quantitative risk assessment techniques. However, our results raise some concerns as to the COSO framework. Particularly, we find no evidence that application of the COSO framework improves risk management effectiveness. Neither do we find support for the mechanistic view on risk management that is implied by COSO’s recommendations on risk appetite and tolerance.

Keywords: Enterprise Risk Management (ERM), ERM implementation, ERM effectiveness

JEL Classification: M41

Suggested Citation

Paape, Leen and Spekle, Roland F., The Adoption and Design of Enterprise Risk Management Practices: An Empirical Study (January 20, 2011). European Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1658200 or http://dx.doi.org/10.2139/ssrn.1658200

Leen Paape

Nyenrode Business University ( email )

Straatweg 25
P.O. Box 130
Breukelen, 3620 AC
Netherlands

Roland F. Spekle (Contact Author)

Nyenrode Business University ( email )

Straatweg 25
P.O. Box 130
Breukelen, 3620 AC
Netherlands

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