The Moderating Effect of Human Capital on the Relationship between Enterprise Risk Management and Organization Performance

Abstract

In today’s challenging global economy, risk management is encountering a significant transformation. Organizations are switching their risk management method to enterprise-wide from the traditional compartmentalized approach. Enterprise risk management (ERM), which aims at increasing the sustainability of an organization and achieving competitive advantage, is gaining global attention and fast becoming an essential concern in all industries. Despite the importance of the knowledge embedded in people in the current knowledge-based economy, there remains a paucity of evidence concerning how human capital could influence the organization’s ERM. Based on the Resource-based view (RBV) theory, this study analyses the correlation between ERM, human capital, and performance in Malaysian public listed companies (PLCs). For this study, 500 questionnaires had been distributed, and 116 responses were obtained. Structural Equation Modeling (SEM) had been used to assess the fitness of the conceptual model. This study found a significant relationship between ERM and organizational performance, and this relationship is moderated by human capital. This study contributes to the ERM literature by providing empirical evidence on the relationship of ERM, human capital, and organizational performance. Findings from this study also provide guidelines for managers, policymakers, and the regulatory bodies to evaluate the ERM practices in PLCs.