Examining the Relationship Between Enterprise Risk Management and Firm Performance in Malaysia (original) (raw)

Abstract

This study aims to examine the relationship between enterprise risk management (ERM) implementation and firm performance in Malaysia. Using the sample from 2010 to 2016, this study examines the relationship between ERM and firm performance among Malaysian top 100 public listed firms registered on the Index FTSE Bursa Malaysia 100 (FBM100) KLSE. This study also provides comparisons before and after the introduction of Bursa Malaysia Guidelines 2013. This study shows a positive and significant coefficient between profitability and firm performance towards ERM implementation. However, this study shows insignificant relationship between firm size, financial leverage and audit firm with firm performance. This study also shows that there is an increase in the mean score and standard deviation of these variables after the implementation of Bursa Malaysia Guideline 2013. The findings in this study provides an understanding to the Malaysian public listed firms on the importance of ERM and su...

Figures (8)

Figure 1. Sample of distribution of industry Figure 1 shows the industrial distribution of the sample based on the industrial classification benchmark (ICB). It shows that the trading services represent the highest sample coverage of 40%. This is followed by the consumer products sector that covers 16% of the sample, industrial sector that covers 12%, properties sector covers 8% and plantation sector covers 7%. The REITS, IPC, construction and technology industries represent the lowest sample coverage. The data for this study was collected from multiple sources. Most of the information needed for this study was gathered from companies’ annual reports. These annual reports were downloaded from Bursa Malaysia website or from the company’s website. Firms’ information on firm performance was obtained from the Thomson DataStream database. The data collected involves total assets, total liabilities, market equity, return on assets and others. The annual reports and Thomson Reuters DataStream database were collected for the years 2010 until 2016. The data on availability of ERM process was collected from the sample firms’ annual reports. The data to calculate firm performance was collected from the Thomson DataStream database.

Figure 1. Sample of distribution of industry Figure 1 shows the industrial distribution of the sample based on the industrial classification benchmark (ICB). It shows that the trading services represent the highest sample coverage of 40%. This is followed by the consumer products sector that covers 16% of the sample, industrial sector that covers 12%, properties sector covers 8% and plantation sector covers 7%. The REITS, IPC, construction and technology industries represent the lowest sample coverage. The data for this study was collected from multiple sources. Most of the information needed for this study was gathered from companies’ annual reports. These annual reports were downloaded from Bursa Malaysia website or from the company’s website. Firms’ information on firm performance was obtained from the Thomson DataStream database. The data collected involves total assets, total liabilities, market equity, return on assets and others. The annual reports and Thomson Reuters DataStream database were collected for the years 2010 until 2016. The data on availability of ERM process was collected from the sample firms’ annual reports. The data to calculate firm performance was collected from the Thomson DataStream database.

3.2 Research Model Table 1 below shows the operationalization of each variable.

3.2 Research Model Table 1 below shows the operationalization of each variable.

Table 2. Descriptive statistic on ERM This study also found that all 89 of the Malaysian public listed firms have implemented ERM. Almost all firms have adopted ERM and the remaining firms largely are moving towards that trend. The result shows that many firms have considered ERM as important to their business operation. ERM integrates risks and adopts an enterprise-wide view of risk management for the whole organisation by considering people, processes, and scopes. O’Donnel (2005) explained that enterprise-wide risk management provides a more effective risk management since it offers a more holistic approach than the traditional risk management. This could reduce overall risk and increase the value of a company.

Table 2. Descriptive statistic on ERM This study also found that all 89 of the Malaysian public listed firms have implemented ERM. Almost all firms have adopted ERM and the remaining firms largely are moving towards that trend. The result shows that many firms have considered ERM as important to their business operation. ERM integrates risks and adopts an enterprise-wide view of risk management for the whole organisation by considering people, processes, and scopes. O’Donnel (2005) explained that enterprise-wide risk management provides a more effective risk management since it offers a more holistic approach than the traditional risk management. This could reduce overall risk and increase the value of a company.

Table 3. Descriptive statistics between before and after RMIC 2013 guideline

Table 3. Descriptive statistics between before and after RMIC 2013 guideline

Table 4. Tolerance and Variance Inflation Factor (VIF)

Table 4. Tolerance and Variance Inflation Factor (VIF)

* Correlation is significant at the 0.05 level (1-tailed) ** Correlation is significant at the 0.01 level (2-tailed) * Correlation is significant at the 0.05 level (1-tailed) Table 5. Pearson correlation among independent, dependent and control variable

* Correlation is significant at the 0.05 level (1-tailed) ** Correlation is significant at the 0.01 level (2-tailed) * Correlation is significant at the 0.05 level (1-tailed) Table 5. Pearson correlation among independent, dependent and control variable

Table 6. Regression Statistic of Enterprise Risk Management (ERM) on firm performance (TOBINQ) and independent variables (SIZE, LEV, ROA, AUD)

Table 6. Regression Statistic of Enterprise Risk Management (ERM) on firm performance (TOBINQ) and independent variables (SIZE, LEV, ROA, AUD)

International Journal of Financial Research

International Journal of Financial Research

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