by Enny Nurdin Sutan Maruhun*, Wan Razazila Wan Abdullah, Masetah Ahmad Tarmizi

Universiti Teknologi MARA, Malaysia

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Abstract The governance of companies has been the subject of increasing interest following the 2008 global financial crisis.   Enterprise risk management (ERM) was introduced as a response to an increasing pressure received by organizations to manage risks comprehensively and to enhance the firm value that was diminishing during the crisis.  ERM is an evolving risk management technique and by using this new tool, a company is able to have an overall view of the potential events that may affect the achievement of its objectives.  Despite the claim that ERM is the solution for corporate governance deficiency, particularly in risk management practices and its potential of value creation, the number of empirical research studying this new field is still limited.  To date, scarce empirical research has been conducted to examine the current extent of ERM implementation, identify determinants of ERM and assess the association between ERM and firm value.  Thus, this study aimed at assessing the current development of ERM practices among Malaysian public-listed companies (PLCs), identifying corporate governance characteristics that influence the implementation and examining the association of corporate governance and ERM with firm value.  The implementation of ERM was measured by using ERM Dimension index (ERMDi). ERMDi was developed because of the limitation possessed by ERM dimension which was highlighted in the literatures. A questionnaire survey was developed based on ERMDi to gather information on the current stage of ERM practices.  Four corporate governance characteristics were examined that are risk management committee (RMC), board size, proportion of non-executive directors and board expertise.  A total of 81 usable questionnaires were successfully collected using the online questionnaire service.  The data was analyzed by using Partial Least Squares and Structural Equation Modelling Tool (Smart-PLS 3.0).  Based on the analysis, board size and board expertise are the significant determinants of ERM implementation.  This study, find support that corporate governance has a positive and significant association with ERM however there is  no evidence of significant association between ERM and firm value.  Findings from this study enable organisations to understand corporate governance characteristics that influence ERM implementation and its effect towards firm value.

Keywords: Corporate governance, enterprise risk management, partial least squares, structural equation modelling

Updated:: 11/04/2022 [syazmer]