Market beta coefficient and enterprise risk management: A literature review

Mike Skorupski

doi:10.18559/ref.2023.1.194

Authors

Mike Skorupski Independent researcher, USA

DOI:

https://doi.org/10.18559/ref.2023.1.194

Keywords:

CAPM, Market beta, Beta coefficient, Systematic risk, ERM

Abstract

One of the significant factors in the valuation of publicly listed firms is their market beta coefficient, commonly utilised in the capital asset pricing model (CAPM) as a proxy for stock volatility directly affecting market value. This article’s primary purpose is to explore the theoretical basis for future empirical research into the relationship between the market beta coefficient and enterprise risk management (ERM). The author explores academic literature about various researched variables affecting the market beta coefficient in the context of the neoclassical capital asset pricing model, which was founded on the premise of an efficient market hypothesis.

Downloads

Download data is not yet available.

Author Biography

Mike Skorupski, Independent researcher, USA

Independent researcher

References

Abildgren, K. (2014). Tail events in the FX markets since 1740. The Journal of Risk Finance, 15(3), 294–311. DOI: https://doi.org/10.1108/JRF-04-2014-0041
View in Google Scholar

Aon. (2017). Aon risk maturity index report.
View in Google Scholar

Asness, C. S., Liew, J. M., Pedersen, L. H., & Thapar, A. K. (2017). Deep value. SSRN Electronic Journal, 1–58. DOI: https://doi.org/10.2139/ssrn.3076181
View in Google Scholar

Bach, C., & Christensen, P. O. (2016). Consumption-based equity valuation. Review of Accounting Studies, 21(4), 1149–1202. DOI: https://doi.org/10.1007/s11142-016-9358-y
View in Google Scholar

Baginski, S. P., & Wahlen, J. M. (2003). Residual income risk, intrinsic values, and share pric¬es. The Accounting Review, 78(1), 327–351. DOI: https://doi.org/10.2308/accr.2003.78.1.327
View in Google Scholar

Ball, R., & Brown, P. (1969). Portfolio theory and accounting. Journal of Accounting Research, 7(2), 300. DOI: https://doi.org/10.2307/2489972
View in Google Scholar

Benson, K., & Faff, R. (2013). β. Abacus, 49(S1), 24–31. DOI: https://doi.org/10.1111/j.1467-6281.2012.00380.x
View in Google Scholar

Bernstein, P. L. (1995). Risk as a history of ideas. Financial Analysts Journal, 51(1), 7–11. DOI: https://doi.org/10.2469/faj.v51.n1.1851
View in Google Scholar

Bhansali, V. (2008). Tail risk management. The Journal of Portfolio Management, 34(4), 68–75. DOI: https://doi.org/10.3905/jpm.2008.709982
View in Google Scholar

Black, F. (1972). Capital market equilibrium with restricted borrowing. The Journal of Business, 45(3), 444–455. DOI: https://doi.org/10.1086/295472
View in Google Scholar

Bohnert, A., Gatzert, N., Hoyt, R. E., & Lechner, P. (2017). The relationship between enter¬prise risk management, value and firm characteristics based on the literature. Zeitschrift Für Die Gesamte Versicherungswissenschaft, 106(3), 311–324. DOI: https://doi.org/10.1007/s12297-017-0382-1
View in Google Scholar

Boloorforoosh, A., Christoffersen, P., Fournier, M., & Gouriéroux, C. (2020). Beta risk in the cross-section of equities. The Review of Financial Studies, 33(9), 4318–4366. DOI: https://doi.org/10.1093/rfs/hhz139
View in Google Scholar

Bowman, R. G. (1979). The theoretical relationship between systematic risk and fi¬nancial (accounting) variables. The Journal of Finance, 34(3), 617–630. DOI: https://doi.org/10.1111/j.1540-6261.1979.tb02129.x
View in Google Scholar

CGMA. (2017). 2017 Global risk oversight report.
View in Google Scholar

Chairani, C., & Siregar, S. V. (2021). The effect of enterprise risk management on financial performance and firm value: the role of environmental, social and governance per¬formance. Meditari Accountancy Research, 29(3), 647–670. DOI: https://doi.org/10.1108/MEDAR-09-2019-0549
View in Google Scholar

Christoffersen, P., Fournier, M., & Jacobs, K. (2018). The factor structure in equity options. The Review of Financial Studies, 31(2), 595–637. DOI: https://doi.org/10.1093/rfs/hhx089
View in Google Scholar

COSO. (Committee of Sponsoring Organizations of the Treadway Commission ) (2004). Enterprise risk management – Integrated framework. In: S. Anand (Ed.), Sarbanes Oxley Guide for Finance and Information Technology Professionals, (pp. 224–232). John Wiley & Sons, Inc.
View in Google Scholar

COSO. (Committee of Sponsoring Organizations of the Treadway Commission) (2017). Enterprise risk management integrating with strategy and performance. In: The Committee of Sponsoring Organizations of the Treadway Commission.
View in Google Scholar

Dębski, W., Feder-Sempach, E., & Szczepocki, P. (2021). Time-varying beta – The case study of the largest companies from the Polish, Czech, and Hungarian Stock Exchange. Emerging Markets Finance and Trade, 57(13), 3855–3877. DOI: https://doi.org/10.1080/1540496X.2020.1738188
View in Google Scholar

Dębski, W., Feder-Sempach, E., & Wójcik, S. (2017). Statistical properties of rates of return of the companies listed on the Warsaw Stock Exchange in the period of 2005–2015. Ekonometria/Econometrics, 3(57), 88–100. DOI: https://doi.org/10.15611/ekt.2017.3.07
View in Google Scholar

Dempsey, M. (2013). The Capital Asset Pricing Model (CAPM): The history of a failed revolutionary idea in finance? Abacus, 49(S1), 7–23. DOI: https://doi.org/10.1111/j.1467-6281.2012.00379.x
View in Google Scholar

Faisal, F., Abidin, Z., & Haryanto, H. (2021). Enterprise risk management (ERM) and firm value: The mediating role of investment decisions. Cogent Economics and Finance, 9(1), 1–15. DOI: https://doi.org/10.1080/23322039.2021.2009090
View in Google Scholar

Fama, E. F. (1965). The behavior of stock-market prices. The Journal of Business, 38(1), 34–105. DOI: https://doi.org/10.1086/294743
View in Google Scholar

Fama, E. F., & French, K. R. (1992). The cross-section of expected stock returns. The Journal of Finance, 47(2), 427–465. DOI: https://doi.org/10.1111/j.1540-6261.1992.tb04398.x
View in Google Scholar

Farrell, M., & Gallagher, R. (2015). The valuation implications of enterprise risk manage¬ment maturity. Journal of Risk and Insurance, 82(3), 625–657. DOI: https://doi.org/10.1111/jori.12035
View in Google Scholar

Feder-Sempach, E. (2017). Efekt interwału w oszacowaniach współczynnika beta na pod¬stawie akcji spółek z indeksu WIG20 i DAX w okresie 2005–2015 – analiza porównaw¬cza. Studia Ekonomiczne, 47–48(325), 20–30.
View in Google Scholar

Frazzini, A., & Pedersen, L. H. (2014). Betting against beta. Journal of Financial Economics, 111(1), 1–25. DOI: https://doi.org/10.1016/j.jfineco.2013.10.005
View in Google Scholar

French, C. W. (2002). Jack Treynor’s “Toward a theory of market value of risky assets”. SSRN Electronic Journal. DOI: https://doi.org/10.2139/ssrn.628187
View in Google Scholar

Gordon, L. A., Loeb, M. P., & Tseng, C.-Y. (2009). Enterprise risk management and firm per¬formance: A contingency perspective. Journal of Accounting and Public Policy, 28(4), 301–327. DOI: https://doi.org/10.1016/j.jaccpubpol.2009.06.006
View in Google Scholar

Grace, M. F., Leverty, J. T., Phillips, R. D., & Shimpi, P. (2015). The value of investing in en¬terprise risk management. Journal of Risk and Insurance, 82(2), 289–316. DOI: https://doi.org/10.1111/jori.12022
View in Google Scholar

Haddad, M. F. C., Blazsek, S., Arestis, P., Fuerst, F., & Sheng, H. H. (2023). The two-com¬ponent Beta-t-QVAR-M-lev: A new forecasting model. Financial Markets and Portfolio Management, 1–23. DOI: https://doi.org/10.1007/s11408-023-00431-4
View in Google Scholar

Harrington, D., & Korajczyk, R. (1993). The CAPM controversy: Policy and strategy im¬plications for investment management: An overview. Association for Investment Management and Research.
View in Google Scholar

Hiebl, M. R. W., Duller, C., & Neubauer, H. (2019). Enterprise risk management in family firms: evidence from Austria and Germany. The Journal of Risk Finance, 20(1), 39–58. DOI: https://doi.org/10.1108/JRF-01-2018-0003
View in Google Scholar

Hollstein, F., & Prokopczuk, M. (2016). Estimating beta. Journal of Financial and Quantitative Analysis, 51(4), 1437–1466. DOI: https://doi.org/10.1017/S0022109016000508
View in Google Scholar

Hoyt, R. E., & Liebenberg, A. P. (2011). The value of enterprise risk management. Journal of Risk and Insurance, 78(4), 795–822. DOI: https://doi.org/10.1111/j.1539-6975.2011.01413.x
View in Google Scholar

Kirkpatrick, G. (2009). The corporate governance lessons from the financial crisis. OECD Journal: Financial Market Trends, 1, 61–87. DOI: https://doi.org/10.1787/fmt-v2009-art3-en
View in Google Scholar

Lai, F. W. (2015). Empirical examination of enterprise risk management’s value creation mechanism. WSEAS Transactions on Business and Economics, 12, 111–123.
View in Google Scholar

Lin, Y., Wen, M.-M., & Yu, J. (2012). Enterprise risk management. North American Actuarial Journal, 16(1), 1–28. DOI: https://doi.org/10.1080/10920277.2012.10590630
View in Google Scholar

Lintner, J. (1965). The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets. The Review of Economics and Statistics, 47(1), 13–37. DOI: https://doi.org/10.2307/1924119
View in Google Scholar

Lisicki, B. (2022). Differentiation of beta coefficients during COVID-19 pandemic – the example of stocks of the largest companies listed on the Warsaw Stock Exchange. Zeszyty Naukowe / Uniwersytet Ekonomiczny w Krakowie, 4(998), 11–28. DOI: https://doi.org/10.15678/ZNUEK.2022.0998.0401
View in Google Scholar

Lundqvist, S. A., & Vilhelmsson, A. (2018). Enterprise risk management and default risk: Evidence from the banking industry. Journal of Risk and Insurance, 85(1), 127–157. DOI: https://doi.org/10.1111/jori.12151
View in Google Scholar

Marc, M., Sprcic, D. M., & Zagar, M. M. (2018). Is enterprise risk management a value add¬ed activity? E+M Ekonomie a Management, 21(1), 68–84. DOI: https://doi.org/10.15240/tul/001/2018-1-005
View in Google Scholar

Markowitz, H. (1952). Portfolio selection. The Journal of Finance, 7(1), 77–91. DOI: https://doi.org/10.1111/j.1540-6261.1952.tb01525.x
View in Google Scholar

Markowitz, H. M. (1959). Portfolio selection: Efficient diversification of investments. Yale University Press.
View in Google Scholar

Marshall, C. M. (2015). Isolating the systematic and unsystematic components of a single stock’s (or portfolio’s) standard deviation. Applied Economics, 47(1–3), 1–11. DOI: https://doi.org/10.1080/00036846.2014.959652
View in Google Scholar

Martin, I. W. R., & Wagner, C. (2019). What is the expected return on a stock? The Journal of Finance, 74(4), 1887–1929. DOI: https://doi.org/10.1111/jofi.12778
View in Google Scholar

McNally, D. (2011). Global slump: The economics and politics of crisis and resistance. PM Press.
View in Google Scholar

McShane, M. K., Nair, A., & Rustambekov, E. (2011). Does enterprise risk management in¬crease firm value? Journal of Accounting, Auditing & Finance, 26(4), 641–658. DOI: https://doi.org/10.1177/0148558X11409160
View in Google Scholar

Mishra, B., &Rolland, E. (2011, February 2). Enterprise risk management: Combating a growing organizational threat. Journal of Accountancy.
View in Google Scholar

Modigliani, F., & Miller, M. H. (2009). Front matter. American Economic Review, 99(1), i–vi. DOI: https://doi.org/10.1257/aer.99.1.i
View in Google Scholar

Mossin, J. (1966). Equilibrium in a Capital Asset Market. Econometrica, 34(4), 768–783. DOI: https://doi.org/10.2307/1910098
View in Google Scholar

Pagach, D. P., & Warr, R. S. (2010). The effects of enterprise risk management on firm per¬formance. SSRN Electronic Journal. DOI: https://doi.org/10.2139/ssrn.1155218
View in Google Scholar

Paleari, S., & Redondi, R. (2005). Regulation effects on company beta components. Bulletin of Economic Research, 57(4), 317–346. DOI: https://doi.org/10.1111/j.0307-3378.2005.00227.x
View in Google Scholar

Reinsel, G. C., & Velu, R. P. (1998). Multivariate reduced-rank regression: theory and ap¬plications. Springer. DOI: https://doi.org/10.1007/978-1-4757-2853-8
View in Google Scholar

Rejda G. E., & McNamara, M. J. (2014). Principles of risk management and insurance (12th ed). Pearson.
View in Google Scholar

Sax, J., & Andersen, T. J. (2019). Making risk management strategic: Integrating enterprise risk management with strategic planning. European Management Review, 16(3), 719–740. DOI: https://doi.org/10.1111/emre.12185
View in Google Scholar

Schneider, P., Wagner, C., & Zechner, J. (2016). Low risk anomalies? SSRN Electronic Journal. DOI: https://doi.org/10.2139/ssrn.2858933
View in Google Scholar

Sharpe, W. F. (1964). Capital asset prices: A theory of market equilibrium under conditions of risk. The Journal of Finance, 19(3), 425–442. DOI: https://doi.org/10.1111/j.1540-6261.1964.tb02865.x
View in Google Scholar

S&P Global Ratings. (2019). Enterprise Risk Management Evaluation Framework.
View in Google Scholar

Treynor, J. L. (1961). Market value, time, and risk. SSRN Electronic Journal. DOI: https://doi.org/10.2139/ssrn.2600356
View in Google Scholar

Treynor, J. (1962). Jack Treynor’s “Toward a Theory of Market Value of Risky Assets.” SSRN Electronic Journal.
View in Google Scholar

Trugman, G. R. (2016). Discount and capitalization rates. In: G. R., Trugman, Understanding Business Valuation: A practical guide to valuing small to medium sized businesses (pp. 441–499). John Wiley & Sons, Inc. DOI: https://doi.org/10.1002/9781119448662.ch13
View in Google Scholar

Varela, O. (2022). Duration-adjusted betas. Review of Financial Economics, 40(2), 168–173. DOI: https://doi.org/10.1002/rfe.1144
View in Google Scholar

Zou, X., Isa, C. R., & Rahman, M. (2019). Valuation of enterprise risk management in the manufacturing industry. Total Quality Management & Business Excellence, 30(11–12), 1389–1410. DOI: https://doi.org/10.1080/14783363.2017.1369877
View in Google Scholar