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Enterprise risk management and investment efficiency: Australian evidence from risk management committees

Enterprise risk management and investment efficiency: Australian evidence from risk management... This study investigates whether and how effective risk management committees (RMCs) improve corporate investment efficiency. Using a sample of listed companies included in the Australian Securities Exchange (ASX) 300 index, we document that effective RMCs improve investments’ sensitivity to growth opportunities and profitability. The results also reveal that effective RMCs enhance corporate investment efficiency by restricting not only over- but also underinvestment. Subsequent analyses demonstrate that the positive effect of RMCs on investment efficiency is due to the reduced information asymmetry and free cash flow problems. Furthermore, we find a more pronounced effect of RMCs on investment efficiency when companies experience a high level of economic policy uncertainty (EPU) and financial constraint.JEL Classifications:G14, G34, M41 http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Australian Journal of Management SAGE

Enterprise risk management and investment efficiency: Australian evidence from risk management committees

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Publisher
SAGE
Copyright
© The Author(s) 2023
ISSN
0312-8962
eISSN
1327-2020
DOI
10.1177/03128962221144513
Publisher site
See Article on Publisher Site

Abstract

This study investigates whether and how effective risk management committees (RMCs) improve corporate investment efficiency. Using a sample of listed companies included in the Australian Securities Exchange (ASX) 300 index, we document that effective RMCs improve investments’ sensitivity to growth opportunities and profitability. The results also reveal that effective RMCs enhance corporate investment efficiency by restricting not only over- but also underinvestment. Subsequent analyses demonstrate that the positive effect of RMCs on investment efficiency is due to the reduced information asymmetry and free cash flow problems. Furthermore, we find a more pronounced effect of RMCs on investment efficiency when companies experience a high level of economic policy uncertainty (EPU) and financial constraint.JEL Classifications:G14, G34, M41

Journal

Australian Journal of Management – SAGE

Published: Jan 1, 2023

Keywords: Economic policy uncertainty; financial constraint; investment efficiency; risk management committee

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