Abstract
This study explores the impact of the adoption of enterprise risk management (ERM) practices on firm performance. A sample of forty five banking and finance companies listed on the Colombo Stock Exchange (CSE) was selected for this study and uses both primary and secondary data for the empirical analysis. The extent of adoption of ERM practices was assessed by using the ERM integrated framework of committee of sponsoring organization (COSO) of the Treadway Commission of USA. Return on equity (ROE) is used as a proxy to measure the firm performance and uses multivariate regression analysis to assess the impact of key ERM functions on firm performance. This study finds none of the eight key ERM functions suggested by the COSO’s ERM integrated framework has a significant impact on firm performance. Event identifications, risk assessment, risk response and information & communication indicate a positive impact on firm performance. However, none of those impacts were significant. Surprisingly, empirical evidence reveals that objective setting; event identification, control activities and monitoring of ERM functions have a negative, but not significant, impact on the firm performance. These findings induce the corporate managers to pay a close attention to the cost-benefits considerations when designing and implementing ERM practices and not heavily relied upon and extensively invest on ERM as a vehicle for creating firm value.
Highlights
Amidst the global economic crisis (1998, 2008), high profile corporate scandals and business failures such as Barings Bank (1995), Enron (2001), WorldCom (2002), the emerging concept of enterprise risk management (ERM) has been widely discussed by the academia and the practitioners in the recent past
This study finds none of the eight key ERM functions suggested by the committee of sponsoring organization (COSO)’s ERM integrated framework has a significant impact on firm performance
Risk assessment, risk response and information & communication indicate a positive impact on firm performance
Summary
Amidst the global economic crisis (1998, 2008), high profile corporate scandals and business failures such as Barings Bank (1995), Enron (2001), WorldCom (2002), the emerging concept of enterprise risk management (ERM) has been widely discussed by the academia and the practitioners in the recent past. Many of the prior researchers (Liebenberg & Hoyt, 2003; Beasley et al 2008; Hoyt et al, 2011, Hoyt et al 2008, Pegach et al 2008, Pegach et al 2010, Pegach et al 2011, Tjahjono, 2017) use dummy variables such as, the presence of the; chief risk officer (CRO), risk committee, big four auditors and institutional shareholders to assess the extent of ERM implementation by business firms. There are some criticisms of this approach and some researchers suggest dummy variables could not effectively assess the extent of ERM adoption by the business firms. Based on the direction of prior researchers (Hoyt et al, 2008; Tjahjono, 2017) this study uses real variables to assess the extent of adoption of ERM using a robust model suggested by COSO’s ERM integrated framework. This study explores the extent of ERM adoption by the listed companies in the Sri Lankan banking and finance industry where it is presumed, in line with the prior researchers’ works
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
