ENTERPRISE RISK MANAGEMENT PRACTICES AND ITS IMPACT ON FIRM PERFORMANCE: EVIDENCE FROM SRI LANKAN INSURANCE INDUSTRY
Enterprise risk management (ERM) has gained an increased attention among the corporate managers in the recent past as a strategic approach to managing risk. This study empirically verifies whether the adoption of ERM has an impact on firm performance and uses both primary and the secondary data relating to the insurance companies listed on the Colombo Stock Exchange. Return on equity (ROE) is used as a proxy to measure the firm performance and multivariate regression analysis is used to analyze data. The findings of this study suggest that there is a weak positive relationship between the adoption of ERM practice and the return on equity. Out of the eight ERM functions assessed, only ‘event identification’ and ‘control activities’ show a weak positive relationship with ROE. Other ERM functions indicate that there is a weak negative relationship with ROE. The findings of this study contradict with some scholars who find there is a significant positive relationship between adoption of ERM and firm performance. Owing to the contradictory nature of the findings, this study induces corporate managers to pay a close attention to the cost-benefits analysis when designing and implementing ERM system and not to heavily invest and extensively relied upon ERM as a vehicle for creating long-term shareholder value.
Altermeyer, L. 2004. “Assessment of Texas State Government: Implementation of Enterpriser Risk Management Principles. “Applied research projects, paper 14.
Beasley, M.S, Clune, R. and Hermanson, D.R..2005. “Enterprise risk management: an empirical analysis of factors associated with extent of implementation. “The Journal of Accounting and Public Policy. Vol.24, 521-531.
Beasley, M.S., Pagach, D., and Warr, R. .2008. “The information conveyed in hiring announcements of senior executives overseeing enterprise-wide risk management process. “Journal of Accounting, Auditing and Finance, 23(3) pp.311-332.
Beasley, M.S., Branson, B.C., Hancock, B.V., 2010. “Current state of enterprise risk oversight and market perception of COSO’s ERM framework.” COSO’s Report on ERM.
Bouaziz, Z. 2012. “The impact of the presence of Audit Committees on the financial performance. “International Journal of Management & Business Studies. Vol.2, issue 4.
Brown, L.D. and Caylor, M.L. 2004. “Corporate governance and firm performance”, DOI: https://doi.org/10.2139/ssrn.586423
Cadbury Report. 1992.“Code of Best Practice of Corporate Governance.” The Committee on the Financial Aspects of Corporate Governance. DOI: https://doi.org/10.1108/09533239310039352
Chaghadari, M.F and Chaleshtori, G.N, .2011. Conference proceedings, International conference on sociality and economic development,
COSO .2004. “Enterprise risk management (ERM) integrated framework” Committee of sponsoring organization of Treadway commission
Deloitte &Touchily, Patchin Curtis and Mark Carey. 2012.“Risk assessment in practice “Committee of sponsoring organization of the Treadway Commission
Eikenhout, L. .2015. “Risk Management and Performance in Insurance Companies”, an un publish Master thesis. http://essay.utwente.nl/66625/1/Eikenhout_MA_MB.pdf
Gates, S, Nicolas, J.L and Walker, P.L. 2012. “Enterprise risk management: A process for enhanced management and improved performance. “Management Accounting Quarterly, pp.28- 38.
Hossein, G.M. and Mahdi, S., 2009. “Corporate Governance and firm performance. “Journal of Accounting Advances. Number 1 (57/3); page(s) 113-128.
Hoyt, R.E., Liebenberg, A.P. 2011. “The value of enterprise risk management. “The Journal of Risk and Insurance, Vol. 78, No. 4, pp. 795-822.
Hoyt, R.E., Moore, D.L. and Liebenberg, A.B. .2008. “The Value of Enterprise Risk Management: Evidence from the U.S. Insurance Industry”. Society of Actuaries.
Implementing Turnbull: a boardroom briefing, .1999. Institute of Chartered Accountants of England and Wales.
Ingram, D.N. 2006. “Standard and Poor’s Enterprise Risk Management Evaluation of Insurers. “Risk management newsletter. Society of Actuaries. March 2006-Issue No. 7
ISO 31000-2009, “Enterprise Risk Management”, International organization for standardization.
Kinyua, J.K., Gakure, R., Gekara, M. and Orwa, G.2015.” Effect of Internal Control Environment on the Financial Performance of Companies Quoted in the Nairobi Securities Exchange. “International Journal of Innovative Finance and Economics Research 3(4):29-48, Oct-Dec.
Kiprop, L. F. and Tenai, J.2017.“The effect of risk identification on performance of financial institutions.” International Journal of Business Strategy ISSN 2519- 0857 (Paper) Vol.2, Issue 1 No.5, pp 75- 87, 2017
Li, Q., Wu, Y., Ojiako, U., Marshall, A. and Chipulu, M. 2014. “Enterprise risk management and firm value within China’s insurance industry.” Acta Commercii 14(1), Art. #198, 10 pages. http://dx.doi.org/10.4102/ ac.v14i1.198 DOI: https://doi.org/10.4102/ac.v14i1.198
Liebenberg, A. P., and Hoyt, R. E. 2003. “The determinants of enterprise risk management: evidence from the appoitnment of chief risk officers.” Risk Management and Insurance Review, 6(1), 37-52. doi: 10.1111/1098- 1616.00019/,DanaInfo=onlinelibrary.wiley.comful.
Lawrence A. Gordon, Martin P. Loeb, Chih-Yang Tseng. 2009.“Enterprise risk management and firm performance: A contingency perspective.”J. Account Public Policy. DOI: https://doi.org/10.1016/j.jaccpubpol.2009.06.006
Monda, B. and Giorgino, M. . 2013.. An ERM maturity model. SSRN Electronic Journal. DOI: https://doi.org/10.2139/ssrn.2198944
Moutinho, V.N. . 2012., Audit fees and firm performance, Dissertation submitted to partial fulfillment of the master’s in finance.
Munene, M.J., 2013. “Effect of internal controls on financial performance of technical training institutions in Kenya”, Online article http://erepository.uonbi.ac.ke/bitstream/handle/11295/59324/Effects%20Of%20Internal%20Cont rols%20On%20Financial%20Performance%20Of%20Technical%20Training%20Institutions%2 0In%20Kenya.pdf?sequence=3 (accessed on 16.10.2017).
Najjar, D.A, .2015. “The effect of institutional ownership on firm performance: Evidence from Jordanian Firms.” International Journal of Economics and Finance. Vol 7, No.12.
Njagi, C. .2015. “Evaluation of the level of enterprise risk management adoption and maturity of the insurance companies in Kenya. “International Journal of Finance and Accounting.
Otieno, O.J. 2012.”Relationship between enterprise risk management practices and financial performance of non-financial firms listed in Nairobi Securities Exchange” an online article: http://erepository.uonbi.ac.ke/bitstream/handle/11295/95923/Opiyo_The%20relationship%20bet ween%20enterprise%20risk%20management%20practices.pdf;sequence=1 (accessed 16.10.2017)
Pagach, D., and Warr, R. 2010. “The effects of enterprise risk management on firm performance”. Electronic article, papers.ssrn.com DOI: https://doi.org/10.2139/ssrn.1155218
Sarbanes-Oxley Section 404: “A Guide for Management by Internal Controls Practitioners. “The Institute of Internal Auditors 2nd Edition, January 2008.
Standard and Poor’s. 2005.“Enterprise Risk Management for Financial Institutions: Rating Criteria and Best Practices”
Stanley, J.D. 2011. “Is the Audit Fee Disclosure a Leading Indicator of Clients' Business Risk?” AUDITING: A Journal of Practice & Theory: August 2011, Vol. 30, No. 3, pp. 157-179.
Tahir, I.M and Razali, A.R,. 2011.“The relationship between enterprise risk management (ERM) and firm value: Eveidence from Malaysian public listed companies “International journal of economics and management sciences
Wholey, J., Hatry, H., and Newcomer, K. 2010.“Handbook of practical program evaluation”. 3rd edition San Francisco: Jossey-Bass.
Copyright (c) 2019 Kingsley Karunaratne Alawattegama
This work is licensed under a Creative Commons Attribution 4.0 International License.
License and Copyright Agreement
In submitting the manuscript to the journal, the authors certify that:
- They are authorized by their co-authors to enter into these arrangements.
- The work described has not been formally published before, except in the form of an abstract or as part of a published lecture, review, thesis, or overlay journal.
- That it is not under consideration for publication elsewhere.
- That its release has been approved by all the author(s) and by the responsible authorities – tacitly or explicitly – of the institutes where the work has been carried out.
- They secure the right to reproduce any material that has already been published or copyrighted elsewhere.
- They agree to the following license and copyright agreement.
Authors who publish with International Journal of Engineering Technologies and Management Research agree to the following terms:
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License (CC BY-SA 4.0) that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
- Authors can enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or edit it in a book), with an acknowledgment of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) before and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work.
For More info, please visit CopyRight Section