Testing the effectiveness of ERM: Evidence from operational losses

Khalid Al-Amri*, Yevgeniy Davydov

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

9 Citations (Scopus)


Enterprise Risk Management (ERM) provides a novel approach to managing all risks faced by a firm as a portfolio. By forming a portfolio of risks firms can optimally choose strategies to hedge their overall risk. This study investigates ERM implementation across a broad spectrum of industries. In particular, we examine the effectiveness of ERM in improving firm internal controls by its impact on operational risk. Our findings suggest that ERM is effective in reducing both the frequency and severity of operational risk events. We find that firms with ERM programs on average experience a 63% reduction in the frequency of operational risk events and up to a 35% reduction in operational losses. The findings still hold after controlling for endogenous selection.

Original languageEnglish
Pages (from-to)70-82
Number of pages13
JournalJournal of Economics and Business
Publication statusPublished - Sept 1 2016


  • Corporate risk management
  • Enterprise Risk Management
  • Operational risk

ASJC Scopus subject areas

  • General Business,Management and Accounting
  • Economics and Econometrics


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