Abstract
Enterprise risk management (ERM) has emerged as a more integrated risk management (IRM) framework in recent years. Many studies have been conducted in recent years to determine the effects of ERM implementation on other parts of an organization. The purpose of this research was to explore the relationship between ERM implementation and organizational performance. The research sample consisted of Iranian banks that either had a license from the central bank of Iran (CBI) or were active in the stock market. A novel measure of ERM implementation was employed in this study. Furthermore, the return on equity (ROE) and Tobin's Q ratio were used as two measures of organizational performance. The results showed that there was a positive and significant relationship between ERM implementation and Tobin's Q ratio, whereas such a significant relationship was not observed between ERM implementation and ROE. The study findings suggested that the adoption of an ERM strategy influences the long-term performance of a firm, not its short-term performance.
Highlights
Risk management has gained more attention in recent years
The results indicated that return on equity (ROE) and return on assets (ROA) had a positive and significant relationship with the degree of Enterprise risk management (ERM) implementation and firm size
The study findings provide some evidence of the effect of ERM implementation on firm performance in the Iranian banking system
Summary
Risk management has gained more attention in recent years. Many firms have started to invest a large sum of money in the implementation of IRM programs. There has been a shift in attitudes toward risk management from addressing it in isolation to a more holistic and system-based view. This is a novel approach in Iran, many organizations have attempted to adopt it. Empirical pieces of evidence confirm this relationship, the result of previous studies should be interpreted cautiously because of the lack of robust measures of ERM (Hoyt & Liebenberg, 2011). The data were collected from pieces of evidence related to 20 active banks in Iran that had implemented an ERM system. There are too many measures of organizational performance, two of which were employed in this study: ROE as a short-term measure of organizational performance and Tobin's Q ratio as a long-term measure of organizational performance
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