Analyzing the Role of Risk Awareness in Enterprise Risk Management

Abstract

This study aims to examine the effect of the five components of enterprise risk management (ERM) on the effectiveness of ERM. This study specifically focuses on the role and function of calculating risk as an ERM component and in the interactions of other ERM components. There are five indicators or components in ERM resulting from factor analysis applied to risk management (RM) in manufacturing companies. RMC in this study was measured by a dummy variable. Where a company that discloses the establishment of a Risk Management Committee (RMC) and a Separate Risk Management Committee (SRMC) in its annual report is given a value of 1, and a company that does not disclose the formation of an RMC and SRMC in its annual report is given a value of 0. Auditor reputation is expressed by whether the auditor used by companies included in the Big Four or not. Analysis Methods The analytical tool used in this research is logistic regression analysis. Parameter estimation using Maximum Likehood Estimation (MLE). The overall model feasibility test uses the chi-square statistical test which is used based on the probability function. This study uses a sample of 149 observations from various companies indexed on the Indonesia Stock Exchange from 2019 to 2021.Research shows that the presence of RMC in a company will increase the demand for risk assurance, which is illustrated by higher assurance fees from auditors, compared to other companies. Second, the results of the study also show that KAP Big four provide better audit quality than non-Big four, then based on the parameters of the Heckit model with the Heckman procedure.Two-Step Estimator shows that there is a strong relationship between the presence of RMC in the company and the company's performance.