Integrating Enterprise Risk Management with Strategic Planning for Improved Firm Performance



Abstract Views
2133

Downloads
2007

Citations

Share

##plugins.themes.bootstrap3.article.sidebar##

Submitted Aug 23, 2020
Published Sep 4, 2020
10.24018/ejbmr.2020.5.5.488

Abstract viewed = 2133 times

Table of Contents

##plugins.themes.bootstrap3.article.main##

The purpose of this paper is to investigate whether the integration of ERM at the strategic planning stage improves a firm's financial performance measured in terms of return on assets. Many researches in the literature have focused on the determinants of ERM implementation and its effects on firm performance. In most of these studies, the ERM concept has been measured dichotomously. A comprehensive measure of ERM is used in this study from primary data gathered based on an established ERM framework. The results show that ERM implementation is not significantly related to firm performance. However, empirical evidence is provided that if ERM is integrated with strategic planning, firm performance shall significantly improve. The comprehensive ERM measure provided contributes to the literature as it enables risk practitioners to assess the level of risk management in their organizations. ERM researchers can use this measure to do away with the dichotomous ERM measure. Furthermore, the study provides evidence of strategic planning, serving as a mediator in the ERM and firm performance relationship in a less investigated context of Africa.

Keywords: Enterprise Risk Management, Firm Performance, PLS-SEM, Strategic Planning

Downloads

Download data is not yet available.

References

  1. M. H. S. B. Abdullah, H. Janor, M. A. Hamid and P. Yatim, "The effect of enterprise risk management on firm value: evidence from Malaysian technology firms," Jurnal Pengurusan, No. 49, 15 pages, July 2017.
     Google Scholar
  2. H. Aguinis, J. R. Edwards, and K. J. Bradley, "Improving our understanding of moderation and mediation in strategic management research," Organizational Research Methods, Vol. 20, No. 4, pp. 665-685, January 2016.
     Google Scholar
  3. M. Aguirre-Urreta and M. Rönkkö, "Statistical inference with PLSc using bootstrap confidence intervals," MIS Quarterly, Vol. 42, No. 3, pp. 1001-1020, January 2017
     Google Scholar
  4. L. Agustina and N. Baroroh, "The relationship between enterprise risk management (ERM) and firm value mediated through the financial performance," Review of Integrative Business and Economics Research, Vol. 5, No. 1, pp. 128-138, January 2016.
     Google Scholar
  5. T. J. Andersen, "Strategic planning, autonomous actions, and corporate performance," Long Range Planning, Vol. 33, No. 2, pp. 184–200, April 2000
     Google Scholar
  6. S. G. Anton, "The impact of enterprise risk management on firm value: empirical evidence from Romanian non-financial firms," Engineering Economics, Vol. 29, No. 2, pp. 151-157, May 2018.
     Google Scholar
  7. R. M. Baron and D. A. Kenny, "Moderator-mediator variables distinction in social psychology research: conceptual, strategic, and statistical considerations," Journal of Personality and Social Psychology, Vol. 51, No. 6, pp. 1173-1182, December 1986.
     Google Scholar
  8. R. Baxter, J. C. Bedard, R. Hoitash, R and A. Yezegel, "Enterprise risk management program quality: determinants, value relevance, and the financial crisis," Contemporary Accounting Research, Vol. 30, No. 4, pp. 1264-1295, August 2012.
     Google Scholar
  9. M. S. Beasley, B. C. Branson, and B. V. Hancock (Spring 2019). "The state of risk oversight: an overview of enterprise risk management practices," 10th Ed. NC State Pool College of Management, Enterprise Risk Management Initiative. [Online]. Available: https://erm.ncsu.edu/az/erm/i/chan/library/2019_Current_Report_on_State_of_Risk_Oversight.pdf
     Google Scholar
  10. M. Beasley, B. Branson, and D. Pagach, "An examination of the assessment of top risks on the horizon: evidence from executives and risk professionals," The Journal of Enterprise Risk Management, Vol. 1, No. 1, pp. 6-26, February 2015.
     Google Scholar
  11. M. Beasley, D. Pagach and R. Warr "Information conveyed in hiring announcement of senior executives overseeing enterprise-wide risk management processes," Journal of Accounting, Auditing & Finance, Vol. 23, No. 3, pp. 311-332, July 2008.
     Google Scholar
  12. J. Benitez, J. Henseler, A. Castillo, and F. Schuberth, "How to perform and report an impactful analysis using partial least squares: guidelines for confirmatory and exploratory IS research," https://doi.org/10.1016/j.im.2019.05.003, May 2019.
     Google Scholar
  13. A. Bohnert, N. Gatzert, R. E. Hoyt, and P. Lechner, "The drivers and value of enterprise risk management: evidence from ERM ratings," The European Journal of Finance, Vol. 25, Issue 3, pp. 234-255, September 2018.
     Google Scholar
  14. B. K. Boyd and E. Reuning-Elliot, "A measurement model of strategic planning," Strategic Management Journal, Vol. 19, pp. 181-192, February 1998.
     Google Scholar
  15. P. Bromiley, M. Mcshane, A. Nair, and E. Rustambekov, "Enterprise risk management: review, critique, and research directions," Long Range Planning, Vol. 48, pp. 265-276, July 2015.
     Google Scholar
  16. P. Bromiley and D. Rau, "Towards a practiced based view of strategy," Strategic Management Journal, Vol. 35, No. 8, pp. 1249-1256, January 2014.
     Google Scholar
  17. J. Bugalla, J. Kallman, and K. Narvaez, "When you come to a fork on the road, take it," Journal of Enterprise Risk Management, Vol. 1, No. 1, pp. 41-55, February 2015.
     Google Scholar
  18. C. Chet-Miller and L. B. Cardinal, "Strategic planning and firm Performance: a synthesis of more than two decades of research," Academy of Management Journal, Vol. 37, No. 6, pp. 1649-1665, December 1994.
     Google Scholar
  19. W. W Chin, "The partial least squares approach to structural equation modeling," Modern methods for business research, Vol., 295, No. 2, pp. 295–336, January 1998.
     Google Scholar
  20. J. Cohen, "A power primer," Psychological Bulletin, Vol. 112, No. 1, pp. 155-159, 1992.
     Google Scholar
  21. Committee of Sponsoring Organizations of Treadway Commission (COSO) (December 2017), "Enterprise Risk Management – Integrating with Strategy and Performance," Association of International Certified Professional Accountants Vols. I, II & Appendix
     Google Scholar
  22. Committee of Sponsoring Organizations of Treadway Commission (COSO) (September 2004), "Enterprise Risk Management – Integrated Framework," [Online]. Available: https://www.coso.org/Documents/COSO-ERM-Executive-Summary.pdf.
     Google Scholar
  23. K. Cormican, "Integrated enterprise risk management: from process to best practice," Modern Economy, Vol. 5, pp. 401-413, January 2014.
     Google Scholar
  24. T. K. Dijkstra and J. Henseler, "Consistent partial least squares path modeling," MIS Quarterly," Vol. 39, No. 2, pp. 297-316, July 2015.
     Google Scholar
  25. J. Donkor, G. N. A. Donkor and C. K. Kwarteng "Strategic planning and performance of SMEs in Ghana: the moderating effect of market dynamism", Asia Pacific Journal of Innovation and Entrepreneurship, Vol. 12, No. 1, pp. 62-76, April 2018.
     Google Scholar
  26. J. R. Falshaw, K. W. Glaister and E. Tatoglu, "Evidence on formal strategic planning and company performance," Management Decisions, Vol. 44, No. 1, pp. 9-30, January 2006.
     Google Scholar
  27. C. Florio and G. Leoni, "Enterprise risk management and firm performance: the Italian case," The British Accounting Review," Vol. 49, No. 1, pp. 56-74, August 2016.
     Google Scholar
  28. G. Franke and M. Sarstedt, "Heuristics versus statistics in discriminant validity testing: a comparison of four procedures." Internet Research, Vol. 29, No. 3, pp. 430-447, June 2019.
     Google Scholar
  29. C. G. Fornell and D. F. Larcker, "Evaluating structural equation models with unobservable variables and measurement error," Journal of Marketing Research, Vol. 18 No. 1, pp. 39-50, February 1981.
     Google Scholar
  30. M. L. Frigo and R. J. Anderson, "Strategic risk management: a foundation for improving enterprise risk management and governance." Journal of Corporate Accounting & Finance, Vol. 22, No. 3, pp. 81-88, February 2011.
     Google Scholar
  31. D. Gefen and D. Straub, "A practical guide to factorial validity using PLS-Graph: a tutorial and annotated example," Communications of the Association for Information Systems, Vol. 16, No.1, pp. 91-109, January 2005.
     Google Scholar
  32. K. G. Girangwa, L Rono and J. Mose, "The influence of enterprise risk management practices on organizational performance: evidence from Kenya state corporations," Journal of Accounting, Business and Finance Research, Vol. 8, No. 1, pp. 11-20, July 2020.
     Google Scholar
  33. N. M. Golshan and S. Z. A. Rasid, "Determinants of Enterprise Risk Management Adoption: An Empirical Analysis of Malaysian Public Listed Firms," International Journal of Social and Human Sciences, Vol. 6, No. 2012, pp. 119–126, 2012.
     Google Scholar
  34. G. E. Greenley, "Strategic planning and company performance: an appraisal of the empirical evidence," Scandinavian Journal of Management, Vol. 10 No. 4, pp. 383-96, December 1994.
     Google Scholar
  35. S. P. Gudergan, C. M. Ringle, S. Wende, and A. Will, "Confirmatory tetrad analysis in PLS path modeling," Journal of Business Research, Vol. 61, No. 12, pp. 1238-1249, December 2008.
     Google Scholar
  36. J. F. Hair, J. J. Risher, M. Sarstedt, and C. M. Ringle, "When to use and how to report the results of PLS-SEM," European Business Review, Vol. 31, No. 1, pp. 2-24, April 2019.
     Google Scholar
  37. J. F. Hair, C. L. Hollingsworth, A. B. Randolph and A. Chon. "An updated and expanded assessment of PLS-SEM in Information Systems Research" Industrial Management & Data Systems, Vol. 117, pp. 442–458, April 2017.
     Google Scholar
  38. J. F. Hair, C. M. Ringle, and M. Sarstedt, "PLS-SEM: indeed, a silver bullet." Journal of Marketing Theory and Practice. Vol. 19, No.2, pp. 139-151, January 2011.
     Google Scholar
  39. M. R. Hamid, W. Ab-Sami, and M. H. M. Sidek, "Discriminant validity assessment: use of Fornell & Larcker criterion versus HTMT criterion," Journal of Physics: Conference Series 890, September 2017.
     Google Scholar
  40. J. Henseler, G. Hubona, and P. A. Ray, "Using PLS path modeling in new technology research: Updated Guidelines," Industrial Management and Data Systems, Vol. 116, No. 1, pp. 2-20, February 2016.
     Google Scholar
  41. J. Henseler and M. Sarstedt, "Goodness-of-fit indices for partial least squares path modeling," Compute Stat. No. 28, pp. 565-580, April 2013.
     Google Scholar
  42. R. E. Hoyt and A.P. Liebenberg, "Value of enterprise risk management," The Journal of Risk & Insurance, Vol. 78, No. 4, pp. 795-822, December 2011.
     Google Scholar
  43. Husaini & Saiful, "Enterprise Risk Management, Corporate Governance, and Firm Value: Evidence from Indonesian Public Listed Companies,", International Journal of Advances in Management and Economics, Vol. 6, No. 3, pp. 16-23, November-December, 2017.
     Google Scholar
  44. H. Jankensgard, "Theory of enterprise risk management', Corporate Governance (Bingley), vol. 19, no. 3, pp. 565-579, January 2019.
     Google Scholar
  45. R. B. Kline, "Principles and practice of structural equation modeling." New York: The Guilford Press, November 2015
     Google Scholar
  46. N. Kock, "Common method bias in PLS-SEM: A full collinearity assessment approach,", International Journal of e-Collaboration, Vol. 11, No. 4, pp. 1-10, October 2015.
     Google Scholar
  47. N. Kock and P. Hadaya, "Minimum sample size Estimation in PLS-SEM: the inverse square root and gamma-exponential method,", Information Systems Journal, Vol. 28, No. 1, pp. 227-261, November 2016.
     Google Scholar
  48. J. Kopia, V. Just, W. Geldmacher, and A. Bubian, "Organization performance and enterprise risk management," ECO FORUM, Vol. 6, No. 1, Issue, 10, January 2017.
     Google Scholar
  49. P. Lechner and N. Gatzert (July 2017). "Determinants and Value of Enterprise Risk Management: Empirical Evidence from Germany," The European Journal of Finance, Vol. 24, No. 10, pp. 867-887, [Online] Available: https://www.tandfonline.com/doi/full/10.1080/1351847X.2017.1347100.
     Google Scholar
  50. Q. Li, Y. Wu, U. Ojiako, A. Marshall, and M. Chipulu, "Enterprise risk management and firm value within China's insurance industry." Acta Commercii, Vol. 14, No. 1, pp. 1–10, February 2014.
     Google Scholar
  51. S. A. Lundqvist, "An exploratory study of enterprise risk management: pillars of ERM," Journal of Accounting, Auditing & Finance Vol. 29, No. 3, pp. 393–429, June 2014.
     Google Scholar
  52. I. R. D. Maia and G. M. M. Chaves (April 2016). "Integration of risk management into strategic planning – a new comprehensive approach," Enterprise Risk Management Symposium, [Online] Available: http://www.ermsymposium.org/2016/ERM_Additional_Papers/Chaves-Maia.pdf.
     Google Scholar
  53. M. K. McShane, A. Nair, and E. Rustambekov, "Does enterprise risk management increase firm value?" Journal of Accounting, Auditing & Finance, Vol. 26, No. 4, pp. 641-658, July 2010.
     Google Scholar
  54. M. A. Memon, H. Ting, J-H, Cheah, T. Ramayah, F. Chuah, and T. H. Cham, "Sample size for survey research: review and recommendations." Journal of Applied Structural Equation Modelling, Vol. 4, Issue 2, pp. i-xx June 2020.
     Google Scholar
  55. M. A. Memon, J-H. Cheah, T. Ramayah, H. Ting, and F. Chuah, "Mediation analysis issues and recommendations." Journal of Applied Structural Equation Modelling, Vol. 2, Issue 1, pp. i-ix, January 2018.
     Google Scholar
  56. A. Mikes and R. S. Kaplan (January 2014). "Towards a contingency theory of enterprise risk management," working paper, [Online]. Available: http://www.hbs.edu/faculty/Publication%20Files/13-063_5e67dffe-aa5e-4fac-a746-7b3c07902520.pdf.
     Google Scholar
  57. Y. W. Musi, E. Mukulu, and M. Oloko, "Influence of strategic planning to firm performance in agricultural research-based institutions of Kenya," Journal Management and Sustainability, Vol. 8, No. 4, pp. 83-95, November 2018.
     Google Scholar
  58. C. Nitzl, J. Roldan, and G. Cepeda, "Mediation analysis in partial least squares path modeling: helping researchers discuss more sophisticated models", Industrial Management & Data Systems, Vol. 116, No. 9, pp. 1849-1864, October 2016.
     Google Scholar
  59. D. Pagach and R. Warr (April 2010). "The effects of enterprise risk management on firm performance," [Online]. Available:https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1155218.
     Google Scholar
  60. S. Pavićević, V. Živković, and T. Stanković, "Risk management and strategic planning," International Journal of Advanced Quality, Vol. 44, No. 4, pp. 37-41, March 2017.
     Google Scholar
  61. E. M. Pierce and J. Goldstein, "ERM and strategic planning: a change in paradigm," International Journal of Disclosure and Governance, Vol. 15, No. 9, pp. 51-59, February 2018.
     Google Scholar
  62. K. J. Preacher and A. F. Hayes, "Asymptotic and resampling strategies for assessing and comparing indirect effects in multiple mediator models," Behavior Research Methods, Vol. 40, No. 3, pp. 879-891, September 2008.
     Google Scholar
  63. C. M. Ringle, S. Wende and J-M. Becker (2015). “SmartPLS GmbH”, http://smartpls.com.
     Google Scholar
  64. C. M. Ringle, M. Sarstedt, and D. W Straub, "Editors comments: a critical look at the use of PLS-SEM in MIS Quarterly," MIS Quarterly, Vol. 36, No. 1, pp. iii-xiv March 2012.
     Google Scholar
  65. J. M. Rudd, G. E. Greenley, A. T. Beatson and I. N. Lings, "Strategic Planning and Performance: Extending the Debate." Journal of Business Research, Vol. 61, No. 2, pp. 99–108, February 2008.
     Google Scholar
  66. C. Ryan (May 2020). "Refereeing articles including SEM – what should referees look for?", Tourism Critiques: Practice and Theory [Online]. Available: https://www.emerald.com/insight/2633-1225.htm
     Google Scholar
  67. M. Sarstedt, J. F. Hair, J-H. Cheah and J. M. Becker (May 2019)." How to specify, estimate, and validate higher-order constructs in PLS-SEM," Australian Marketing Journal, [Online], Available: https://doi.org/10/1016/j.ausmj.2009.05.003.
     Google Scholar
  68. O. Sayilir and M. Farhan, "Enterprise risk management and its effect on firm value in Turkey," Journal of Management Research, Vol. 9, No. 1, pp. 86-99, December 2016.
     Google Scholar
  69. J. Sax and T. J. Andersen, "Making risk management strategic: integrating enterprise risk management with strategic planning," European Management Review, Vol. 16, pp. 718-740, June 2018.
     Google Scholar
  70. F. Schiller and G. Prpich, "Learning to organize risk management in organizations: what future for enterprise risk management?" Journal of Risk Research, Vol. 17, No. 8, pp. 999-1017, September 2013.
     Google Scholar
  71. Z. Şenol and S. S. Karaca, "The effects of enterprise risk management on firm performance: a case study on Turkey," Financial Studies, Vol. 2, July 2017.
     Google Scholar
  72. M. K Shad and F. Lai, "A conceptual framework for enterprise risk management performance measure through economic value-added," Global Business and Management Research, Vol. 7, No. 2, pp. 148-154, January 2015.
     Google Scholar
  73. R. J. Shea-Van Fossen, H. R. Rothstein, and H. J. Korn, "Thirty-five years of strategic planning and firm performance research: a meta-analysis," Academy of Management, Best Conference Paper, BPS: M6., August 2006.
     Google Scholar
  74. I. Sosiawani, A. B. Ramli, M. B. Mustafa, and R. Z. B. Yussof, "Strategic planning and firm performance: a proposed framework," International Academic Research Journal of Business and Technology, Vol. 1, No. 2, pp. 201-207, January 2015.
     Google Scholar
  75. I. M. Tahir and A. R. Razali, "The relationship between enterprise Risk Management (ERM) and firm value: evidence from Malaysian public listed companies," International Journal of Economics and Management Sciences, Vol. 1, No. 2, pp. 32-41, January 2011.
     Google Scholar
  76. T. R. Viscelli, M, S. Beasley, and D. R. Hermanson (October-December, 2016). "Research insights about risk governance: implications from a review of ERM research." Sage Open, pp. 1-17, [Online]. Available: http://journals.sagepub.com/doi/pdf/10.1177/2158244016680230.
     Google Scholar
  77. N. Waweru and E. S. Kisaka (August 2011). "The effect of enterprise risk management implementation on the value of companies listed on the Nairobi Stock Exchange," 40 pages, [Online] Available: http://ssrn.com/abstract=1907248.
     Google Scholar
  78. X. Zhao, J. G. Lynch, and Q. Chen, "Reconsidering Baron & Kenny: myths and truths about mediation analysis," Journal of Consumer Research, Vol. 37, pp. 197-206, August 2010.
     Google Scholar