Enterprise Risk Management System Research Articles

Enterprise risk management and performance of the South African insurers: the moderating role of corporate governance

This study contributes to the literature by examining the effect of enterprise risk management (ERM) on insurers’ performance (underwriting performance and Return on Assets) and investigating how corporate governance characteristics such as board size, board independence and gender diversity moderate the ERM-performance relationship. The study employs the generalised method of moments on a sample of 63 insurers in South Africa, covering 2015–2019. The study’s findings agree with the literature that a positive relationship exists between ERM and insurers’ performance. This was consistent with both performance indicators. Again, we find that board size, board independence, and gender diversity interact with ERM in affecting insurers’ performance, and the relationship was significantly positive. This implies that corporate governance plays a significant role in promoting ERM effectiveness in affecting performance. Therefore, insurers interested in ensuring a robust ERM system should leverage these governance factors to appreciate the overall impact of ERM on performance.

Enterprise risk management, corporate governance and insurers risk-taking behaviour in South Africa: evidence from a linear and threshold analysis

PurposeThis study examines the linear and non-linear effects of enterprise risk management (ERM) and corporate governance (CG) on insurers’ risk-taking behaviour.Design/methodology/approachThe study employed panel data of 63 insurers from South Africa over the period 2015 and 2019. The study used the generalised method of moments (GMM) to determine the direct relationship, while the dynamic panel threshold technique was utilised to discover whether there is non-linearity in the relationship and the threshold level at which ERM and CG stimulate insurance risk-taking.FindingsThe result from the GMM elicits a positive relationship between ERM and risk-taking, implying that insurers with a robust ERM system are more likely to pursue higher risks. The empirical evidence also suggests that board size and board independence improve insurers’ risk-taking. Contrarily, gender diversity shows an inverse relationship with risk-taking. The dynamic panel threshold regression confirms non-linearities between ERM, CG and risk-taking. The empirical evidence indicates a U-shaped relationship between ERM and risk-taking, implying that a robust ERM system increases insurers’ risk-taking and vice-versa. Further, board size and independence reveal an inverted U-shaped relationship, suggesting that larger boards and a higher proportion of independent directors exhibit lower risk-taking. However, gender diversity presents a negative relationship, demonstrating a strong impact at higher threshold levels. This tells that the presence of females on the board reduces insurers’ risk-taking preferences.Practical implicationsDue to the risk-bearing nature of the insurance business, it is required that they ensure a robust ERM system for prudent risk-taking decisions. This demands strict adherence to ERM principles and allocating sufficient resources for effective implementation. Also, there is a need for strong CG structures that pay more attention to diversity when selecting board members due to their influence in ensuring improved risk-taking choices.Originality/valueThis study contributes to the existing literature by providing insights into the under-researched role of ERM and CG in insurers’ risk-taking behaviour. The study further extends the literature by providing evidence on the non-linearity and threshold levels at which ERM and CG influence insurers’ risk-taking choices. The findings are unique and contribute to the growing body of literature documenting the need for strong ERM and CG systems in insurance companies.

Концептуальные вопросы создания систем управления рисками промышленных предприятий

The article reveals the fundamental issues of creating risk management systems for industrial enterprises and provides a brief description of the main approaches to identifying risks and related goals and assessment methods. The aim of the study is to summarize modern foreign theoretical approaches to the creation of enterprise risk management system. Using the method of bibliographic analysis, an overview of modern main conceptual foreign approaches to understanding enterprise risks and risk management is given. The interrelation between risk reduction (elimination) activities and the types of risks undertaken is elucidated. Various applications of risk management systems within companies are presented, along with examples of the most common risk management systems employed by industrial enterprises and a synthesis of the experience in applying the most effective risk management methods. The conclusion emphasizes the necessity of meticulous risk identification and analysis in building corporate risk management systems. Moreover, the presented examples of successful risk management systems serve as valuable benchmarks for industry practitioners seeking to enhance their risk mitigation capabilities. Moving forward, continued research and refinement of risk management methodologies are essential for adapting to evolving business landscapes and ensuring the resilience of industrial enterprises in the face of uncertainty. Ultimately, proactive risk identification and analysis remain pivotal in fostering a culture of risk-awareness and resilience within organizational frameworks.

Research on the Digital Transformation of Enterprise Risk Management System—Taking Jiaokong Technology as an Example

Research on the Digital Transformation of Enterprise Risk Management System—Taking Jiaokong Technology as an Example

Triangulating Risk Profile and Risk Assessment: A Case Study of Implementing Enterprise Risk Management System

Establishing an enterprise risk management (ERM) system is widely viewed as providing firms with the tools and processes needed to build resilience and expertise, enabling them to manage the consequences of crises that have led to the collapse of major firms across different industries globally. Intended for use in advanced accounting, auditing, and finance courses, this case study (of a true event) describes the development and implementation of an ERM system for a U.S. multinational nonprofit firm during the 2015–2021 period. The case study’s main learning objectives are several-fold. First, couched within the recent economic environment, it informs students on some of the more important academic and applied research on corporate risk management. Second, students will learn to analyze the content of a questionnaire designed to capture the integrated effects of the firm’s risk culture, risk structure, risk governance, and control for establishing its risk profile. Third, they will learn to create and apply multi-dimensional risk indices to measure and prioritize the firm’s risk exposures. Finally, the last learning outcome focuses on strategies to triangulate the firm’s overall risk profile and risk prioritization results to construct mitigation strategies that build resilience and create value through risk diversification, information signaling, the exploitation of natural hedges, and enhancing the board’s governing efficiency. The nonprofit nature of the firm in this case study introduces no methodological or conceptual constraints or limitations in applying the proposed risk management methodologies to for-profit or publicly traded firms.

Managing cyber risk in the financial sector: Insights from a case study

Purpose: This article focuses on cyber risk as an emerging issue within the risk management process and the internal control system in the financial sector. It in-vestigates whether cyber risk management (CRM) is (dis)integrated into traditional enterprise risk management (ERM) and analyzes the external dynamics affecting the CRM design. Design/methodology/approach: This article draws upon institutional theory and the concept of boundary objects. The research examines a listed Italian bank and gathers the data from semi-structured interviews, direct observations, meet-ings, and archival sources. Findings: The findings underline that cyber risk rationale plays a crucial role in the CRM process. The interplay between institutional complexity and the need to manage cyber risk is critical for a bank to have a stable and flexible infrastructure. The knowledge boundaries related to the cyber risk culture require further cyber risk talk. Originality/value: This research furthers the understanding of cyber risk and CRM as an integral part of the ERM and internal control systems in the financial sector, in which there is a shortage of case studies. The financial sector is highly regulated, and managing cyber risk has become crucial as banks usually deal with enormous amounts of personal and sensitive data stored on networks and in the cloud. Practical implications: This case study emphasizes the crucial role of CRM in the identification and reporting of cyber risk information in annual reports.

СОВРЕМЕННЫЕ ЗАРУБЕЖНЫЕ НАПРАВЛЕНИЯ ИССЛЕДОВАНИЙ В ОБЛАСТИ УПРАВЛЕНИЯ РИСКАМИ ПРЕДПРИЯТИЙ

The article presents the results of an analysis of modern foreign scientific sources on enterprise risk management. Based on bibliographic analysis, it is shown that in setting research goals and in practical activities in risk management, there has been a paradigm shift and a change in approaches to ways to solve this problem. The main trend is an increase in research and practical developments based on an integrated approach to identifying and analyzing risks, as well as building an enterprise risk management system. There has also been increased interest in studying the relationship between enterprise performance and the practice of using a corporate risk management system. During the research, key directions in the development of the concept of enterprise risk management were highlighted, and shortcomings and gaps in existing research were revealed. It was revealed that the ambiguity in the interpretation of risks, as well as the influence of an integrated enterprise risk management system and its impact on key performance indicators of enterprises (efficiency, market value, competitiveness) in the scientific and empirical literature has led to a significant expansion of areas of research within the framework of solving the problem of risk management.

РИЗИК-МЕНЕДЖМЕНТ В СИСТЕМІ ЗАБЕЗПЕЧЕННЯ СТАЛОГО РОЗВИТКУ ПІДПРИЄМСТВА В УМОВАХ НЕВИЗНАЧЕНОСТІ

The article examines the role of risk management in the system of ensuring the sustainable development of the enterprise in uncertain conditions. The increasing uncertainty of doing business has resulted in the need to develop and implement effective tools to ensure the protection of the enterprise from various types of risks. The purpose of the article is to provide a summary of the theoretical and methodological advancements in enterprise risk management in uncertain conditions to ensure its sustainable development. Scientific approaches to the interpretation of the essence of the concepts "risk" and "risk management" are summarized and an author's approach to their interpretation is proposed. It is determined that risk management is a dynamic process, the effectiveness of which depends on the speed of response to changes in market conditions, the financial condition and economic situation of the management object. The sequence of stages of enterprise risk management is validated. In particular, the accumulation of information about the situation; diagnosis of the current situation; development of alternative options for management solutions; management decision-making; implementation of management decisions. The prerequisites for ensuring effective risk management of enterprise are defined. To ensure sustainable development, the common features inherent in all models of the enterprise's risk management system are determined. It is proposed to limit the risk at each stage of development of the risk situation. It was established that the effectiveness of risk management is directly related to the reasonableness of choosing a set of measures to prevent and/or minimize risk. Proposals are developed to improve the efficiency of enterprise risk management in conditions of rapid change of environmental factors. It is concluded that in a rapidly changing external environment, the determining prerequisites for ensuring the sustainable development of domestic enterprises are the integration of the risk management system into the overall management system of the enterprise and the formation of the correct perception of risk in its managers.

УПРАВЛІННЯ РИЗИКАМИ НА ПІДПРИЄМСТВІ В УМОВАХ ТРАНСФОРМАЦІЙНИХ ЗМІН

This article examines the peculiarities of risk management at the enterprise in the conditions of transformational changes. The analyzed factors require constant work in the direction of improving the theoretical and practical aspects of risk management at the enterprise. The interpretation of the concept of risk in accordance with the processes of the enterprise's economic activity is determined. The classification of risks depending on the signs of occurrence is considered in detail. The risk management system is characterized as identification with a certain science or art of ensuring the effective functioning of economic entities. Strategic and tactical risk management goals are defined. The object of enterprise risk management and the subject of enterprise risk management have been established. The strategy of combating risks at the enterprise is characterized. Directions for improving the enterprise's risk management system in conditions of transformational changes are provided. The variety of areas of economic activity, rapid changes in the world economy, the increase in the influence of internal and external aspects of functioning in the conditions of market relations, limited resource and financial support – all these phenomena require a rapid and adequate response from modern enterprises and, accordingly, the development of a high-quality risk management strategy accompanying the listed factors. The problem of risk management becomes extremely urgent in the conditions of ensuring the economic and personnel security of the enterprise, which, in turn, requires regular and uninterrupted risk management by competent specialists who are able to qualitatively solve problems of this nature and minimize the probability of receiving losses. Taking into account the changing economic and political conditions of today, risky situations arise in the activities of any enterprise constantly. That is why it is necessary in all spheres of business to apply a risk management system both at the level of individual divisions and at the enterprise as a whole. That is, thanks to this, it is possible to prevent losses and strengthen the company's competitive position on the market.

Enterprise risk management system

Enterprise risk management system

Evaluation of the critical success factors of dynamic enterprise risk management in manufacturing SMEs using an integrated fuzzy decision-making model

To succeed, a firm essentially needs to take the right amount of risk. Thus, the great significance of risk management has attracted many researchers to focus on how to implement enterprise risk management (ERM) systems most effectively. Generally, smaller entrepreneurial firms have to cope with this challenge more informally. Most manufacturing small and medium-sized enterprises (SMEs) are family companies; as a result, family dynamics greatly impact how such companies do business. The q-rung orthopair fuzzy set (q-ROFS) provides a wide window for the preference elicitation of decision-makers (DMs). Inspired by the advantages of the q-ROFS, in the current paper, a novel decision framework, the q-ROF-entropy-rank sum (RS)-additive ratio assessment (ARAS), called the “q-ROF-entropy-RS-ARAS” approach, is developed. The q-ROF-entropy-RS approach is applied to compute the weights of critical success factors (CSFs) for dynamic ERM in SMEs, and the q-ROF-ARAS model is used to assess enterprise preferences. An empirical case study is conducted to evaluate the CSFs for dynamic enterprise risk management in SMEs. Additionally, the comparison and sensitivity investigation are carried out to show the superiority of the developed framework.

The integration between enterprise risk management and performance management system: managerial analysis and conceptual model to support strategic decision-making process

The integration between Enterprise Risk Management (ERM) and Performance Management System (PMS) has become a crucial process for managing environmental complexity in companies. In this context, in order to contribute to the research field, this paper follows two purposes: (1) to identify the most relevant risk dimensions, and connected risk drivers, perceived in managerial practices; and (2) to provide a suitable way to integrate ERM and PMS in supporting the strategic decision-making process. Based on semi-structured interviews with a total of 75 senior and middle managers from 25 different Italian companies, the authors developed a conceptual model to support the corporate transition to integrate ERM and PMS processes, built on a specific set of Key Risk Indicators (KRIs) that can enable them to achieve economically and environmentally sound performance.

Evolution of Energy Companies’ Non-Financial Disclosures: A Model of Non-Financial Reports in the Energy Sector

In the 21st century, the disclosure of non-financial information in non-financial reports (N-FRs), in particular in Corporate Social Responsibility reports (CSRRs), integrated reports (IRs), and activity reports (ARs), has a global dimension, and the quality and scope of such disclosures affects both a wide range of stakeholders and the global economy. In the last decade, changing trends, considerations, as well as economic, legal and social factors have significantly influenced the content of corporate disclosures. In the context of N-FRs, special attention should be paid to the energy sector, which is in many ways essential for both the domestic and global economy. Therefore, its functioning also attracts the attention of researchers. The objective of this paper is to show the practical aspects of N-FRs and to assess the quality of reports submitted by companies in the Polish energy sector. The authors assessed the quality of non-financial information contained in the reports of energy sector companies in terms of four key management areas: Environmental Management System (EMS), Quality Management System (QMS), Enterprise Risk Management System (ERMS), and Corporate Governance Principles (CGPs). On the basis of their analysis of all CSRRs and IRs submitted by Polish energy sector companies in Poland in 2010–2020, the authors propose a model for the disclosure of information on these systems. Standardized reporting on these key management areas in the energy sector will improve the quality and usefulness of information from the perspective of all stakeholders. A model like this may be useful in many countries that manage their energy sectors in a similar way, such as Central and Eastern Europe (CEE) and other developing countries.

How corporate social responsibility mediates the relationship between corporate reputation and enterprise risk management: evidence from Spain

Enterprise risk management (ERM) systems lessen the probability of risks harming a firm’s reputation for a number of reasons. First, a high-quality ERM system makes it less likely a firm will suffer a risk-based reputational crisis. Second, ERM systems help companies to behave more responsibly towards all stakeholders, thereby ensuring firms meet stakeholders’ expectations. Third, when a crisis stemming from an uncontrollable risk occurs, a high-quality ERM system helps to reduce the negative impact on reputation because stakeholders will not attribute guilt to a firm which has acted responsibly in its risk management. In this research, we explore the link between corporate reputation and ERM systems together with the role played by corporate social responsibility (CSR) performance as a mediator. Our results support the notion that ERM system quality enhances CSR performance as well as corporate reputation. The results also confirm that ERM systems have a positive impact on corporate reputation via the mediating effect of CSR performance. Companies should therefore use risk management policies to bolster both their CSR and their reputation.

DETERMINANTS OF ENTERPRISE RISK MANAGEMENT (ERM) EFFECTIVENESS

This study examines determinants of enterprise risk management (ERM) effectiveness.Previous studies suggest that find evidence supporting an indirect effect of risk awareness onRM effectiveness. Furthermore, there is a need for an integrated approach to ERM. Based onsurvey data, the reserachers find evidence supporting an indirect effect of risk awareness onRisk Management (RM) Effectiveness. The study supports the use of risk tools strengthens therelationship between risk awareness and RM effectiveness. Moreover, risk awareness has apositive effect on RM through strategy integration, which helps managers to better recognizeand evaluate the risks. There is an indirect effect of risk awareness to ERM through risk tools.This study contributes to management accounting that there is a need of more intensesocialization and understanding to increase risk-conscious behavior in organization. This willlead to important information to determine risk awareness effectives. This study also has itslimitations. First, despite the sample size that relatively small, the sufficient to perform theintended analysis. Second, there may be other characteristics of ERM processes that were notreflected in this study. Future research could explore the aspects of ERM with more specificrespondents, such as those involved in initiating risk management programs and relevantregulators. Another area for future research is more specific factors that determines to thesuccess of an ERM system.

Qualitative Analysis of Enterprise Risk Management Systems in the Largest European Electric Power Companies

Enterprise risk management (ERM) is an important element of an efficient and comprehensive corporate governance system. It represents a combination of activities that minimise the negative impacts of the risk exposures on the company’s value and long-term corporate sustainability. Recently, there has been a growing awareness on the role and importance of the risk management function. Such trends are partly driven by the consequences of the last economic and financial crisis on the one hand, and on the other by legal and regulatory requirements. The economic downturn caused by the COVID-19 pandemic, volatility in the energy markets and increased uncertainty expected in the upcoming period reiterate the importance of timely risk management practices, because organisations with developed risk management systems are more resilient in case of crisis. This paper analyses the organisation and level of development of ERM systems in the ten largest European electric power companies. The companies’ data on risk management practices are collected from annual reports and analysed by applying Content Analysis (CA), searching for 29 characteristics of a developed ERM system. Research results reveal that ERM in the largest EU electric power companies can be considered as advanced as it applies the five dimensions of the COSO 2017 framework. The analysis confirms the existence of 27 out of 29 characteristics of a developed ERM system, confirming that these characteristics are rooted not only in the relevant ERM theory, but also in the practice of large and successful electric power companies.

Enterprise Risk Management Maturity: A Clinical Study of a U.S. Multinational Nonprofit Firm

This study, which is based on actual events, presents a dynamic analysis of the development, implementation, and post-implementation review of establishing an enterprise risk management (ERM) system for a U.S. multinational nonprofit firm over a 5-year period, 2015–2020. Using the Risk and Insurance Management Society Risk Maturity Model (RIMS RMM), questionnaire-based risk data and multi-dimensional risk mapping indices are used to identify and prioritize the firm’s key strategic risks leading to the development of mitigation strategies whose performance are reviewed post ERM implementation, including during the 2020 Coronavirus pandemic. The results reveal that the firm’s risk management system has been ad hoc and uncoordinated. Post-implementation review of the ERM program shows improvements in financial and operating positions resulting from risk diversification, enhanced profitability, exploitation of natural hedges, and improved board governance. The results further show that the recommended mitigation strategies have been effective in managing the adverse impact of the pandemic. Overall, the evidence offered in this study provides further support on the valuation benefits of ERM maturity within a real-world environment.

Forming features enterprise risk management system

Forming features enterprise risk management system

Underpinning Hawley’s Risk Theory of Profit on Risk Intelligence and Sustainability Relations of SMEs in Nigeria

Sustainable development is one of the topical issues posing a global challenge to the business world. To remain successful in today's competitive business environment, Small and Medium-Scale Enterprises (SMEs) must find a way to exist by adapting to dynamic sustainability challenges. The study aimed to examine Hawley’s Risk Theory of Profit's underpinning role in explaining the connection between Risk Intelligence (RI) and SMEs’ sustainability (SUS). It was understood that risk could pose both opportunities and threats to business, and therefore, proactive detection is paramount to address the risk capable of ridiculing sustainability. Therefore, we proposed integrating the moderating role of financial performance in the relationship between Nigerian SMEs' risk intelligence and sustainability. The study found Hawley’s theory relevant to risk and sustainability tradeoff. Previous studies proxied risk intelligence by knowledge management, financial literacy, and risk-taking propensity, which paved the way for developing a framework for attaining sustainable SMEs in Nigeria. We concluded that SME’s sustainability could be ensured by effectively managing inherent risks and should be incorporated into Enterprise Risk Management (ERM) systems.

A Model of Risk Information Disclosures in Non-Financial Corporate Reports of Socially Responsible Energy Companies in Poland

Risk management is critical for corporate finance management systems, in addition to corporate social responsibility (CSR) and sustainable development (SD) programs. Stakeholders need risk information to make informed judgments as to their involvement. No studies exist to date concerning disclosure of non-financial and financial risks in corporate annual statements and Polish strategic sector company reports. The authors sought to determine whether energy companies disclosed risks in non-financial annual reports in 2011–2020 (e.g., CSR, integrated, and board activity reports), and whether one can assess threats, including business activity risks and SD, based on these reports. We assessed the reports of all large Polish energy companies on a three- and five-degree scale to develop a model for risk information disclosures. We have three key empirical findings. Only half the analysed companies disclose annual financial data, threats, and risks. Less than half have implemented and operate enterprise risk management systems. The current ‘soft’ regulatory solutions give energy companies appreciable risk disclosure options, which often is counterproductive. We suggest developing a single integrated European Union (EU) regulation (e.g., directives, standards, or official principles) for non-financial risk disclosures. Our model classifies Polish energy company risks to business activity operations and risk management systems. Other sectors can use this universal model. Our results constitute progress in identifying company risks and may encourage continuing studies of other energy companies, especially in Central and Eastern Europe (CEE), which should be intensively developed. Research should also occur in other strategic sectors.