Enterprise Risk Management and its Value Creation Transmission Mechanism

This paper discusses the theoretical argument towards establishing the value creation mechanism for enterprise risk management implementation. It highlights the notion of managing firms’ systematic and unsystematic (specific) risk via an ERM implementation framework that leads to the enhancement of shareholders’ value. The mechanism through which the firms’ value enhancement takes place is theorized by a strategic conceptualization of risk premium model. The model cites managing the firm’s four classes of risks, namely macroeconomic, tactical, strategic, and normative risks. Hence, this paper investigates the validity of the theorized value creation transmission mechanism of the proposed ERM framework via the strategic conceptualization of risk premium model.