Accounting Fraud

The importance of corporate governance and the risk of accounting fraud manifest during the sudden collapse of Enron in 2001 (Palmrose and Scholz, 2004). By fall of 2000, Enron started facing some financial troubles and began to crumble under its weight. The company’s accounting system failed to offer a clear picture of the firm’s financial position, the board, external auditors, and even the financial analysts from Wall Street did not expect such liquidation to happen so fast. After this incident the list of corporate failures has grown, companies like Xerox, Bristol-Myers Squibb, Qwest, WorldCom, and Global Crossing collapsed. This has led to many debates on the efficiency of corporate governance. These scandals have highlighted the serious

(2013) offers so far the most comprehensive empirical analysis of ERM determinants from a corporate governance perspective. This detailed examination of ERM drivers showed that higher quality of ERM is associated with good corporate governance attributes such as, the presence of chief risk officers, audit committees, a board with longer tenure and having supervisory expertise within the audit committee members. Based on this argument, this empirical study attempts to show that corporate governance attributes are important when deciding to implement an ERM system. Overall, this study makes several contributions to the extant literature on ERM. First, it addresses the paucity of evidence regarding the relation of corporate governance and ERM. This paper examines a broad range of corporate governance variables such as, board independence, ownership concentration, CEO compensation, CEO duality, board size, board tenure, the size of audit committee, audit independence, the proportion of accounting financial experts (PAFE) and proportion of supervisory financial experts (PSFE) within the audit committee. This extension flows naturally from Baxter’s et al. (2013) study, however, some of the internal controls variables such as, audit committee risk oversight, risk structure of the firm and audit-related risks are not included in the empirical model. The reason why these variables were excluded from the main model is that these elements were addressed in

The findings suggest that CEO support play a vital role in the degree of ERM implementation. Furthermore, large shareholders of the Nordic have less incentive in implementing an ERM system. In agreement with previous studies, the multivariate logistic regression identifies that firm size, leverage, and industrial diversification significantly influence the degree of ERM implementation. As far as value creation of ERM, this paper fails to support the argumentation that ERM creates value to firms. The findings are also robust to different measures of firm-specific and corporate governance variables. In addition, different dependent variable ERM has been used such as the presence of CRO and ERM ordinal, similar as Beasley et al, (2005) and Sekerci (2014). This has been carried out to test the credibility of the ERM measure and the empirical results, as well as, to facilitate comparison with other empirical studies in this line of research (see, for example, Beasley, et al., 2005; Sekerci,