Do risk management activities impact earnings volatility?

This study investigates whether changes in the quality of risk management are associated with changes in earnings volatility. Our findings are consistent with firms achieving lower earnings volatility by implementing higher quality risk management systems. These results are robust across profit and loss firms, although the economic impact of risk management quality is more pronounced for loss firms. Our results provide evidence as to how companies accomplish market performance through a quality risk management framework, and offer a reason why companies should allocate resources toward risk oversight. In addition, our results also suggest that recent public policy initiatives to improve risk management practices have tangible rather than superficial benefits to external stakeholders.