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Enterprise Risk Management, Risk-Taking, and Macroeconomic Implications: Evidence from Bank Mortgage Loan Management

Author

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  • Shiang Liu

    (University of Wisconsin – La Crosse)

  • Jianren Xu

    (University of North Texas)

Abstract

We investigate how enterprise risk management (ERM) reshapes firm risk-taking behaviors. Using loan-level data, we find that ERM does not affect bank mortgage loan origination but increases loan sales. To strengthen identification, we employ a staggered difference-in-differences approach in matched samples and instrumental variables. The channel analysis reveals a stronger ERM impact on mortgage sales for high default-risk loans and when macroeconomic risk is greater, suggesting a risk-transfer effect. ERM influences firms by identifying risky business and external risks, thereby altering risk transfer/retention policies. Additionally, banks with ERM incorporate macroeconomic conditions when setting loan loss provisions, reducing credit market procyclicality.

Suggested Citation

  • Shiang Liu & Jianren Xu, 2025. "Enterprise Risk Management, Risk-Taking, and Macroeconomic Implications: Evidence from Bank Mortgage Loan Management," Journal of Financial Services Research, Springer;Western Finance Association, vol. 68(1), pages 123-152, August.
    • Handle: RePEc:kap:jfsres:v:68:y:2025:i:1:d:10.1007_s10693-024-00422-0
    DOI: 10.1007/s10693-024-00422-0
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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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