Enterprise Risk Management and Firm Performance: A Financial Sector Analysis of Pakistan

Abstract

Enterprise faces many kinds of risks and therefore the attention differs across institutions and organizations. Risk as an event that will influence the performance of a corporation as well as environmental risks, moral problems and social problems. Furthermore, risk or uncertainty as a broad and well-organized structure for managing different kinds of risks like credit, operational, marketplace, operative, economical or capital risks and risk transmission to maximize organization worth. The research analysis the different performance indicator of firm, enterprise risk management and their effect on firm performance. The secondary data on Commercial Banks, Foreign Banks, Investment Banks, Insurance Companies, Development Finance Institutions (DFIs), Leasing Companies, Mutual Funds, Modaraba Companies and Housing Finance Companies are collected from Financial Statement Analysis (FSA) from 2008 to 2016 provided by Statistics and DWH Department of State Bank, Pakistan. This study used Debt to Asset Ratio (DTA) as dependent variable and dummy of firm performance while Cost to Income Ratio (CTI), Enterprise Risk Management (ERM), Equity to Asset Ratio (ETA), Enterprise Value to Asset Value (EVTAV), Leverage (LVG), Return on Capital Employed (ROCE) and Return on Equity (ROE) are used as independent variables. The research found long run relationship among the variables. OLS Regression Test that Enterprise Risk Management (ERM) implementation, Equity to Asset Ratio (ETA), Enterprise Value to Asset Value (EVTAV), Leverage (LVG), Return on Capital Employed (ROCE), Return on Equity (ROE) have significant effect on performance of financial firms in positive direction while Cost to Income Ratio (CTI) have insignificant impact on performance of financial firms.