However our multiple regression anal ysis finds

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across all types of entities is not possible. However, our multiple regression anal- ysis finds significant relations between the magnitude of equity market returns and certain firm specific characteristics. For the nonfinancial firms in our sample, announcement period returns are positively associated with firm size and the vol- atility of prior periods’ reported earnings and are negatively associated with cash on hand relative to liabilities and leverage, while controlling for changes in beta that occur after ERM adoptions. These associations are consistent with ERM adding value for firms in which there are real costs to shareholders from idiosyn- cratic risks. For financial firms, however, there are fewer statistical associations between announcement returns and firm characteristics. This lack of a result may be due to these firms having been engaged in ERM before their appointment of a CRO, or it could be a function of regulatory and rating agency demands for ERM for financial institutions (Basel [2003]; Standard & Poor’s [2005]). Our results indicate that the benefits of ERM are not equal across firms, but are de- pendent on certain firm-specific characteristics. The paper proceeds as follows: Section 2 provides background on the evolu- tion of ERM and develops our hypotheses, Section 3 describes the data and methodology, Section 4 presents the results, and Section 5 concludes and sug- gests areas for future research. 2. Background and Hypotheses Development The rapid emergence of ERM is being driven by pressure from a range of sources. For example, the New York Stock Exchange’s (NYSE) final corporate governance rules now require audit committees to ‘‘discuss guidelines and poli- cies to govern the process by which risk assessment and management is under- taken’’ (NYSE [2004]). Section 409 of the Sarbanes-Oxley Act of 2002 (SOX) requires public companies to disclose to the public ‘‘on a rapid and current basis 313 INFORMATION CONVEYED IN HIRING ANNOUNCEMENTS
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such additional information concerning material changes in the financial condi- tion or operations of the issuer, in plain English, which may include trend and qualitative information’’ (SOX [2002]). Some have interpreted this increased emphasis on transparency and completeness of disclosures of trend and other qualitative information as increasing the need for more robust enterprise-wide risk management processes to ensure that a process is in place to meet these expanding disclosure expectations. In addition, the emerging regulatory capital framework, known as Basel II, expands risk management requirements for finan- cial institutions to include oversight of operational risks in addition to credit and market risks as part of their capital adequacy determinations (Basel [2003]). In response to these requirements, financial institutions are embracing ERM to man- age risks across the entity. Rating agencies, such as Standard and Poor’s and Moody’s, are examining how managers are controlling and tracking the risks fac- ing their enterprises (Samanta, Azarchs, & Martinez [2005]; Standard & Poor’s [2005]). These rating agencies have publicly reported their explicit focus on
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