Enterprise Risk Management as a Dynamic Capability: A Test of Its Effectiveness During a Crisis

Nail, Anil, McShane, Michael, Rustambekov, Elzotbek, and Fainshimdt, Stav, 2013, Enterprise Risk Management as a Dynamic Capability: A test of its effectiveness during a crisis, Managerial and Decision Economics, Forthcoming

12 Pages Posted: 21 Aug 2013 Last revised: 30 Aug 2014

See all articles by Anil Nair

Anil Nair

Old Dominion University - Strome College of Business

Elzotbek Rustambekov

Bryant University

Michael K. McShane

Old Dominion University

Stav Fainshmidt

Old Dominion University

Date Written: August 19, 2013

Abstract

The dynamic capabilities framework has emerged as a growing area of research within business disciplines — the framework seeks to explain how and why firms adapt successfully to changes in their environments. Yet, whether such capabilities are effective in periods of environmental changes that can be characterized as a crisis remains an unexplored area of research. This paper adopts the position that enterprise risk management (ERM) constitutes a dynamic capability, and examines whether a firm’s ERM capability allowed it to respond effectively to the financial crisis of 2008. We find that superior ERM capability was associated with lower decline in stock price during the downturn and superior profitability during the upturn. The results suggest that firms may need different types of dynamic capabilities to react and respond to different dimensions of environment and type of change.

Keywords: enterprise risk management, dynamic capabilities

Suggested Citation

Nair, Anil and Rustambekov, Elzotbek and McShane, Michael K. and Fainshmidt, Stav, Enterprise Risk Management as a Dynamic Capability: A Test of Its Effectiveness During a Crisis (August 19, 2013). Nail, Anil, McShane, Michael, Rustambekov, Elzotbek, and Fainshimdt, Stav, 2013, Enterprise Risk Management as a Dynamic Capability: A test of its effectiveness during a crisis, Managerial and Decision Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2312424

Anil Nair (Contact Author)

Old Dominion University - Strome College of Business ( email )

Norfolk, VA 23529
United States

Elzotbek Rustambekov

Bryant University ( email )

1150 Douglas Pike
Smithfield, RI 02917-1284
United States

Michael K. McShane

Old Dominion University ( email )

Norfolk, VA 23529-0222
United States

Stav Fainshmidt

Old Dominion University ( email )

Norfolk, VA 23529-0222
United States

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