A Theoretical Framework for Enterprise Risk Management and Organizational Performance

Abstract

The implementation of holistic risk management, enterprise risk management (ERM), is believed to contribute significantly to the successful performance of modern-day organizations that operate in an increasingly volatile and dynamic environment. In an environment of scarce resources and information uncertainty, ERM, risk culture, and strategic planning is required to face an unstable business environment to achieve organizational goals. Several conceptual and empirical studies have provided mixed evidence on the value relevance of ERM. Scholars have also demonstrated that the effects of ERM on performance are contingent upon certain contextual variables. Currently, the academic literature is silent on the joint relationship of ERM, risk culture, strategic planning, and organizational performance. The purpose of this study is to uncover this research gap by analytically reviewing pertinent conceptual and empirical literature to establish the possibility that the impact of ERM on organizational performance is transmitted through risk culture and strategic planning. This paper advances these evolving suggestions, which hinges on the conclusion that the direct effect of ERM on organizational performance is debatable and hence inconclusive due to the possible mediating influence of risk culture and strategic planning. A framework is conceptualized to examine the mediating effects of these two constructs on the relationship. The study proposes partial least squares structural equation modeling for statistical analysis using the unexplored multiple mediation analysis in the ERM academic literature. This paper’s postulations would guide empirical research in various contexts to address the knowledge gaps in the extant literature.