An investigation of the effect of risk management on the economic value of JSE listed companies

Gerber, Guillaume (2015-04)

Thesis (MBA)--Stellenbosch University, 2015.

Thesis

ENGLISH ABSTRACT: When it comes to risk management, academic opinion is divided into two camps. There are those who argue that risk management is a waste of resources and time, and that in spite of all the effort invested, it does not add any economic value to an organisation. On the other hand, there are those who believe that risk management not only safeguards, but also actively contributes to the value of an organisation. This study was an attempt to obtain empirical evidence from the South African sector to support one of the two abovementioned arguments. In doing so the study addresses the research problems of whether risk management and specifically Enterprise Risk Management, creates value for an organisation, and whether the fact that a company has a risk management program in place should influence investor decisions The study was conducted in the following way: Measurements of the maturity of the risk management systems and the implementation dates of these systems were obtained from the senior managers of a number of organisations by means of a questionnaire. This data was then compared with annual measurements of the value of these organisations that were taken between 2000 and 2013. To determine if there was a relationship between the value of an organisation and the risk management maturity tests were conducted to look for the following: i. A statistically significant relationship between the most recent measure of organisational value and the maturity of risk management. ii. A statistically significant relationship between risk management maturity and the most recent rate of organisational value increase. iii. A discernible difference between the rate of organisational value change before and after the implementation of an Enterprise Risk Management system. iv. A statistically significant relationship between risk management maturity and organisational value subsequent to the introduction of an Enterprise Risk Management system. The study found evidence of a significant gain in the rate of organisational value increase directly subsequent to the introduction of an Enterprise Risk Management system, but also that the increased rate was not sustained. Other tests yielded contradictory or indecisive results that did not lead to clear conclusions, but illuminated future research directions.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/97324
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