Do Enterprise Risk Management Practices impact on Strategic Performance? -Evidence from an emerging economy (original) (raw)
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Impact of Enterprise Risk Management Practices on Performance of insurance companies in Sri Lanka
International Conference on Business and Information ICBI 2020(online), University of Kelaniya, 2020
Enterprise risk management (ERM) has gained an increasing attention among the corporate managers in the recent past as a strategic approach to managing risk. This study empirically verifies whether the adoption of ERM has an impact on firm performance and uses both primary and the secondary data relating to the Sri Lankan insurance companies. 230 executive level employees from 26 Sri Lankan insurance companies have been selected as the sample of this study using stratified random sampling technique and primary data were collected using a structured questionnaire. Return on Assets (ROA) and Tobin"s Q are used as proxies to measure the firm performance and ERM practices have been measured based on the guidelines of COSO ERM framework. Descriptive statistics, Correlation analysis and regression analysis are used to analyze data. Results of the mean testing reveals that three components of COSO ERM framework namely, Internal Environment, Objective setting and Risk Assessment indicate a high level of practice. Further, correlation analysis indicates two independent variables namely, control environment and Information & communication have a significant relationship with ROA. At the same time, two independent variables namely, objective setting and Information & communication have a significant relationship with Tobin"s Q. Hypotheses testing identified that Control activities; Information & communication and monitoring are the most crucial variables which have a positive impact on the performance of the insurance industry. These results indicate that, even though the level of implementation of ERM practices in Sri Lankan insurance industry is moderate / high levels, the other than Control activities, Information & communication and monitoring all other five components are not showing significant impact towards the performance. It implies that the expected value addition from the ERM practices have not been achieved by the Sri Lankan insurance companies yet. Findings of this study contributes methodologically as researcher used robust model to measure ERM practices and the results may be helpful to Insurance companies in Sri Lanka to improve their ERM practices and to adopt efficient strategies to improve firm financial performance through the implementing proper ERM practices.
International Journal of Engineering Technologies and Management Research, 2019
Enterprise risk management (ERM) has gained an increased attention among the corporate managers in the recent past as a strategic approach to managing risk. This study empirically verifies whether the adoption of ERM has an impact on firm performance and uses both primary and the secondary data relating to the insurance companies listed on the Colombo Stock Exchange. Return on equity (ROE) is used as a proxy to measure the firm performance and multivariate regression analysis is used to analyze data. The findings of this study suggest that there is a weak positive relationship between the adoption of ERM practice and the return on equity. Out of the eight ERM functions assessed, only 'event identification' and 'control activities' show a weak positive relationship with ROE. Other ERM functions indicate that there is a weak negative relationship with ROE. The findings of this study contradict with some scholars who find there is a significant positive relationship between adoption of ERM and firm performance. Owing to the contradictory nature of the findings, this study induces corporate managers to pay a close attention to the cost-benefits analysis when designing and implementing ERM system and not to heavily invest and extensively relied upon ERM as a vehicle for creating long-term shareholder value.
Journal of Management Research, 2018
The objective of this empirical study is to explore the effect of the adoption of ERM on the performance of the diversified industry of Sri Lanka. The extent of the adoption of ERM is assessed based on eight ERM functions recognized by the ERM integrated framework of the committee of sponsoring organization of the Treadway Commission and use return on equity as a proxy to measure firm performance. This study finds ERM supportive internal environment, risk-aligned objective setting, event identifications, and risk response have a positive impact on firm performance. However, none of those impacts were statistically significant. Surprisingly, empirical evidence reveals that risk assessment and control activities have a negative impact on the firm performance. Information & communication and monitoring functions indicate a significant impact on firm performance. Nevertheless, monitoring function shows a negative impact on the firm performance. The researcher believes this negative impact is attributable to the increased cost of monitoring activities that is crucial for a diversified business setup. This empirical evidence induces the researcher to conclude that, except for communication and monitoring, the adoption of ERM has no significant impact on the firm performance. These findings are contradictory with the findings of prior researchers.
Journal of Research in Business, Economics and Management, 2018
This paper begins with academic empirical findings on current state of maturity with ERM (Enterprise Risk Management) as evidenced by research survey at SIC Company Ghana. The study of ERM (Enterprise Risk Management) took a qualitative research strategic approach, the study analysis of non-numerical qualitative data is expressed through words that is used to find answers to the stated hypothesis , which is applicable to this study. The research data collected was based on a single case study considering that the annual reports only indicated whether the company used COSO’s framework and ERM practices, a further investigation had to be made to ensure the suitability of the potential case company. State Insurance Corporation (SIC) Ghana was contacted considering that the company seemed to be using the COSO framework as well as having a strategic thinking regarding risk. The aim of the study was to investigate the usage of ERM (which should permeate the organization. To answer the res...
Canadian Center of Science and Education, 2018
This study explores the impact of the adoption of enterprise risk management (ERM) practices on firm performance. A sample of forty five banking and finance companies listed on the Colombo Stock Exchange (CSE) was selected for this study and uses both primary and secondary data for the empirical analysis. The extent of adoption of ERM practices was assessed by using the ERM integrated framework of committee of sponsoring organization (COSO) of the Treadway Commission of USA. Return on equity (ROE) is used as a proxy to measure the firm performance and uses multivariate regression analysis to assess the impact of key ERM functions on firm performance. This study finds none of the eight key ERM functions suggested by the COSO's ERM integrated framework has a significant impact on firm performance. Event identifications, risk assessment, risk response and information & communication indicate a positive impact on firm performance. However, none of those impacts were significant. Surprisingly, empirical evidence reveals that objective setting; event identification, control activities and monitoring of ERM functions have a negative, but not significant, impact on the firm performance. These findings induce the corporate managers to pay a close attention to the cost-benefits considerations when designing and implementing ERM practices and not heavily relied upon and extensively invest on ERM as a vehicle for creating firm value.
Enterprise Risk Management and Firm Performance Validated Through 2
— Enterprise Risk Management (ERM) is an essential technique, used to manage a myriad of risks in a holistic manner. This paper presents an ERM implementation framework which is operationalized by fourteen elements. It highlights the impact of ERM towards the firm's performance measured through Economic Value Added (EVA) factors. The research design incorporates descriptive and cross-sectional analysis. Data was collected from 120 public listed companies in Bursa Malaysia through questionnaires survey. Results of the empirical analysis show that ERM implementation has significant positive impact on firm's performance. The results support the hypothesis that the firms which implements ERM will enhance their performance as validated through the perceived measurement of EVA factors. This study offers a perspective of measuring ERM implementation impact through EVA factors as compared to the accounting measures.
Blue Eyes Intelligence Engineering & Sciences Publication , 2020
Future of uncertainty and risks in firm businesses and country-based economics remains continuous processes that need to be managed effectively and efficiently. Risks taking is a routine activity in all firms. Enterprise Risk Management (ERM) has now become an ultimate concern and a robust risk management approach in all financial and non-financial industries and other sectors throughout the globe. Firms are adopting ERM as a holistic strategy by putting its core components in practice to effectively manage all risks to protect the organizations and stakeholder value. The process of putting ERM into practice is only effective and efficient through identifying the factors that influence its practice in order to improve the firm performance. As a result of this reason, various factors influencing ERM were examined by different investigators as an indirect factor or as a parameter. However, only a few scholars studied it as a major factor or main objective, despite the risks remain a major issue influencing the goals of enterprises in all firm types in both Jordan and Malaysia. In order to fully consolidate the influencing factors on ERM practices, a comparative review of the available literature in Jordan and Malaysia were carried out to excavate the key influencing factors for direct identification in order to improve the firm performance. The factors identified were categorized into three groups; the management-based, firm-based, and ERM-performance-measurement-based factors. Each group of factors was found to influence the success of ERM strategies and practices in both Jordan and Malaysia. Jordan (Middle-East) and Malaysia (South-East Asia) shared a common characteristic of ERM adoptions and practices with regard to firm composition and risk management. Both countries are now pacing up to meet up with ERM practice challenges. Although, ERM still is a relatively new concept in several parts of Middle-East and SouthEast Asia. Though, Malaysia proved to have more improved and established ERM success factors and researches as compared to Jordan. Additionally, Malaysia was found to have more appeared ERM terms in the Board of Bursa Malaysia (BBM) Guidelines as well as ERM practices under different sectors from 2008 to 2018 compared to Jordanian Amman Stock Exchange (ASE). Thus, it appears that Malaysia has more robust ERM research works, adoptions, practices, and compliance system in place compared to what is obtainable in Jordan. In conclusion, firm managers in Jordan and Malaysia are highly recommended to use these ERM factors identified as strategic and to improve ERM practices in their organizations.
International Journal of Business and Management
This paper intends to vindicate the influence of Enterprise Risk Management (ERM) implementation on firm performance. A sample of 11 oil and gas Public Listed Companies (PLC’s) were selected in this study. Data were collected using content analysis with regard to the companies’ ERM practices and their financial performances. ERM implementation was measured using COSO’s ERM integrated framework while the firm financial performance was assessed through return on assets (ROA) measurement. Multiple regression analysis was performed to test eight developed hypotheses. Results indicate that four components of the ERM framework, i.e. supportive internal environment, objective setting, control and monitoring activities, are found to be positive and significant predictors for the firm’s performance. The findings support the efficacy and potential strengths of ERM implementation in the oil and gas companies.
International Business Research, 2011
Enterprise Risk Management (ERM) is a new concept of managing risks holistically and in Malaysia, such a concept is still relatively new among Malaysian companies. On a positive note however, the ERM concept appear to be receiving much attention over the recent years from various businesses and industries in Malaysia. This particular study aims to determine the level of ERM adoption among the Government-Linked Companies (GLCs) and to examine the influence of Chief Risk Officers (CROs) and Board of Directors (BODSs) on the ERM implementation itself. Findings of the study showed that the more established GLCs were more receptive to the adoption of ERM as compared to the less established ones. Also, companies that adopt ERM were found to have appointed the Chief Risk Officers (CROs). In addition, the quality of Board of Directors (BODSs) was also found to play a significant role in respect of ERM implementation.
The Impact of the Adoption of Enterprise Risk Management Firm Performamce
International Journal of Research in BusinessandSocialScience, 2018
Enterprise risk management (ERM) has gained an increased attention during the recent past as an integrated approach to manage risk for creating and preserving firm value. The objective of this study is to explore and empirically verify as to whether the adoption of the ERM has an impact on the firm performance. This study uses both primary and secondary data pertaining to 129 companies listed on the Colombo Stock Exchange under the banking & finance, insurance, diversified, manufacturing, food and beverage and chemical and pharmaceutical sectors. Primary and secondary data are collected by distributing a survey questionnaire and analyzing the published financial statements of the observing companies. Researcher adopts ERM integrated framework suggested by the committee of sponsoring organization (COSO) of the Treadway Commission of the USA to assess the value relevance of ERM and uses return on equity (ROE) as a proxy to measure the firm performance. This study finds, except for control activities, none of the key ERM functions, suggested by the COSO’s ERM integrated framework, has a significant impact on the performance of listed companies. Internal environment, objective setting, and information & communication indicated a weak positive impact on the firm performance. Nevertheless, none of those impacts were statistically significant. Empirical evidence reveals that firms’ risk responding strategies have no impact on the performance. Surprisingly, monitoring of ERM functions has weak negative, but not significant, impact on the firm performance. These findings are contradictory with the theoretical expectation that the adoption of ERM practices has a positive impact on firm performance as confirmed by the prior researchers.