Ricerc@Sapienza

The general goal of Enterprise Risk Management (ERM) processes is to
generate economic value through the coverage of firm business risk, on
the one hand, and by exploiting the positive side of uncertainty
conditions, on the other hand.
The increasing attention attributed to ERM in the creation of
economic value has led to even greater interactions between risk
management mechanisms and the corporate governance system.
In other words, in the last two decades, the relationships between
corporate governance and ERM increased since the ERM processes have
been considered more and more as critical drivers to combine strategic
objectives with relative low volatility of company performance. The basic
idea is that a good corporate governance system must deal about specific
risks along with their interactions and, at the same time, the firm’s
business risk as a whole. Moreover, an efficient and effective ERM
system provides clear information about linkages between strategic
opportunities and risk exposure and offers tools able to manage in an
optimal way the negative side of business risk (or downside risk) as wellas its positive side (or upside risk).
Accordingly, extant studies concerning the relationships between
ERM and corporate governance have been focusing on a micro-level of
analyses (i.e., the individual organization) and, specifically, on a firm’s
benefits that stem from the adoption of proper ERM processes that are
consistent with corporate governance goals and are able to sustain the
increase of economic value while maintaining a bearable business risk
over time.
From our initial analyses, a gap in literature arises. We argue that
the interdependence between ERM and corporate governance may be
analyzed from a broader point of view as well (i.e., the firm and its task
environment composed by its suppliers, customers, and partners). In
particular, our research idea is to enlarge traditional studies about
interrelations between corporate governance and ERM taking into
account whether such interrelations could be a driver of risk transfer
from the focal organization to other organizations that belong to its task
environment. Moreover, this study aims to deepen the mechanisms by
which the transfer of risk from a focal organization to its task
environment may foster the emergence of systemic risk, i.e., a macro risk
coming from domino and/or network effects.
Therefore, our paper aims to find new research areas by combining
micro and macro issues tied to corporate governance, ERM and systemic
risk.
The starting point of our work is the three following assumptions:
1) The compliance of a firm to ERM processes as well as to corporate
governance rules implies the reduction as much as possible of firm
business risk;
2) The reduction of the firm business risk leads to externalizing the
firm business risk through risk-sharing mechanisms;
3) The risk-sharing may arise like a driver of systemic risk
especially in those industries featured by strong network interrelations.
Starting from the above assumptions, the paper goal is to open a
new research area which combines four academic fields (ERM, corporate
governance, corporate finance, and macro-finance). So far, our initial
findings tell us that the following research questions arise:
RQ1: What are the conditions under which the transfer of business
risk towards organizations that belong to a firm task environment is
likely to become a source of systemic risk in a specific industry?
RQ2: How does the capital structure of a focal firm affect its
propensity to transfer business risk not only to commercial but also to
financial stakeholders included in firm task environment?
RQ3: How does the transfer of business risk influence the capital
cost of the focal firm as well as of the organizations that absorbed such
risk?