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

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.