Gloria Gardenal

The Effect of the Enterprise Risk Management Implementation on the Firm Value of European Companies

We aim to investigate the impact of the adoption of an Enterprise Risk Management (ERM) system on the enterprise value and to discover which are the determinants of this choice. Several economic actors have decided to face the current economic and financial complexity shifting from a Traditional silo-based Risk Management approach (TRM) to a more comprehensive one, the so called Enterprise Risk Management (ERM). Some academics have tried to investigate the effects of the ERM implementation on firm value, mainly focusing on the financial industry. The results are still controversial. Moreover, there is no empirical evidence about the adoption of ERM programs among non-financial companies. The aim of our study is double: first, we try to understand if the ERM implementation affects firm value on a sample of 200 European companies, belonging to both financial and non-financial industries; second, we test which are the determinants of the adoption of an ERM system. We do this performing a fixed effects panel regression analysis (goal 1) and a fixed effects logistic analysis (goal 2). We find a positive statistically significant relation between the ERM adoption and firm value. As for the probability that a firm engages in an ERM protocol, we find that size, the company beta and profitability (ROA) are the statistically significant determinants.

Enterprise Risk Management and Integrated Reporting: Is There a Synergism?

Integrated Reporting (IR) and Enterprise Risk Management (ERM) are two ways that have to converge into the “integrated thinking” approach, as both of them push towards a new long-termism in management decisions. Risk management aims to protect company value, this way making the business sustainable over time; so risk issues should be well considered into the integrated report and, in the meantime, company providing the integrated report should demand for the existence of an ERM. Analyzing the companies of the IIRC Pilot Programme we find that: the number of companies filling the IR and contemporaneously adopting the ERM is increasing over time. However, shifting from the traditional to the integrated report doesn’t imply a simultaneous adjustment to an integrated risk management, but when both approaches are present companies have higher performances with respect to those that only do the IR. This evidence supports the hypothesis that ERM can be useful to make the integrated thinking effective.

Risk Taking Behaviour and Diversification Strategies: Do Financial Literacy and Financial Education Play a Role?

This study investigates whether financial education and financial literacy influence the risk taking of non-professional investors and the diversification strategies they pursue. To this purpose, we submitted a questionnaire to 711 US residents. Our results show that financial education prevents financial illiteracy and changes the investment process of investors. On the other hand, financial literacy, measured according to the synthetic metric introduced by Lusardi and Mitchell, does not influence risk taking. Financial education indirectly exerts its influence also on a simple diversification behaviour, the so-called naive diversification, pursued equally splitting wealth among investment classes. In fact, whereas for uneducated investors there is no relationship between risk diversification strategies with both financial literacy and the main investor features, for educated investors financial literacy fosters such diversification behaviour. These results have important policy implications showing that financial education can trigger relevant changes in the investment patterns of investors. Our study introduces a series of novelties. First, we focus on how financial education and financial literacy simultaneously affect the investment process of investors. Moreover, we attempt to disentangle their effects on the risk taking dimension and diversification strategies, which are the most effective way to contain the potentially disruptive effects of risks taken.

Trust and financial literacy: An experimental investigation

The recent economic crisis still lingering in Europe has deeply affected the way individuals look at the investment market. Understanding the trust processes underlying the decision to invest with financial intermediaries is of particular importance both at managerial (product development and advertisement) and at normative level (how intermediaries are regulated). This paper investigates through an online experiment whether discrepancies in the financial literacy of investors and brokers can be used to explain the decision to trust - thus, to invest in the financial market. The results show that trust is affected by the information disclosure in somewhat unexpected ways.

Risk governance and performance of the Italian Banks: an empirical analysis

Italian Abstract: Il paper indaga la relazione tra l’adozione di buone pratiche di gestione del rischio e la performance e la rischiosita delle banche italiane. In particolare, l’obiettivo della ricerca e capire se una risk governance strutturata possa aiutare le banche ad aumentare la propria performance e la stabilita dei loro risultati. L’analisi si focalizza sui 21 gruppi bancari italiani quotati e copre un orizzonte d’indagine compreso tra il 2005 e il 2014, differenziandosi dagli studi precedenti che considerano principalmente il mercato americano ed europeo e si basano su dati meno aggiornati.I risultati evidenziano che le scelte di risk management e risk governance delle banche italiane possono influenzare le loro performance e il rischio associato. Le evidenze empiriche suggeriscono che la scelta di dotarsi di un Cro non e indice di successo in termini di redditivita o di contenimento dei rischi. E, invece, l’attivita del Comitato Rischi che si dimostra efficace nel permettere una maggiore solidita della banca stessa, che si manifesta in una riduzione della variabilita dei risultati, sia in termini di redditivita che di rischio.English Abstract: The paper investigates the relation between the adoption of good practices in risk management and the level of performance and riskiness of banks. In particular, we aim at understanding if the application of the Enterprise Risk Management approach to banks helps increasing their stability. We test the hypothesis that those banks using an integrated risk management approach have, ceteris paribus, a lower level of risk and a higher performance. Our analysis focuses on 21 Italian listed banking groups, in the time period 2005-2014. Our preliminary results show that the risk management function influences the risk and performance of the bank; however, it is not possible from our data to define an optimal model of risk governance.