Enterprise risk management and investment efficiency: Australian evidence from risk management committees
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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. G14, G34, M41