Enterprise Risk Management and Financial Performance: Evidence from Emerging Market

Document Type: Original Research


1 Department of Accounting, Covenant University, Ota, Nigeria

2 Department of Accounting, Bingham University, Abuja, Nigeria

3 Department of Accounting, Nasarawa State University, Keffi, Nigeria


This study examines the impact of Enterprise Risk Management (ERM) on financial performance in the emerging market with special focus on the Nigerian financial sector. The study investigates 40 companies from the period 2012 to 2016 resulting into 200 firm observations. The method used to measure financial performance was Return on Assets (ROA) while Value at Risk (VaR) was used as a proxy for Enterprise Risk Management (ERM). The study used other control variables such as Leverage (LEV), Board Size (BSIZE), Firm Size (FSIZE), Institutional Ownership (INTOWN) and Risk Management Committee Size (RMC). The result of regression coefficient shows that VaR (0.216), BSIZE (0.218), FSIZE (0.021), INTOWN (0.001), and RMC (0.032) are statistically significant with the exception of LEV (-0.572) which shows an inverse relationship with financial performance. The empirical findings show that ERM is positively and significantly related to financial performance. The results support the hypothesis that ERM has a significant impact on the financial performance of listed firms in the Nigerian financial sector. We recommend that the regulatory authorities (Central Bank of Nigeria, Financial Reporting Council of Nigeria etc.) in charge of the financial sector should ensure that all firms in the sector adopt ERM as a matter of urgency and continue to ensure strict compliance with the ERM framework.


Acharyya, M. & Johnson, J. (2007). Investigating the development of enterprise risk management in the insurance industry: An empirical study of four major European Insurers, The Geneva Papers on Risk and Insurance, Special Issue,  2(1), 55-80.
Ajibo, K. (2015). Risk-based regulation: The future of Nigerian banking industry. International Journal of Law and Management, 57(3), 201-216.
Argyrous, G. (2005) Statistics for research with a guide to SPSS, (2nd edition), London: Sage Publishers.
Arena, M., Arnaboldi, M. & Azzone, G. (2010). The organizational dynamics of enterprise risk management. Accounting, Organizations and Society, 35(7), 659– 675.
Barton, T., Shenkir, W., & Walker, P. (2002) Making enterprise risk management payoff, FT Press, New York.
Beasley, M., Clune, R. & Hermanson, D. (2005). Enterprise risk management: An empirical analysis of factors associated with the extent of implementation. Journal of Accounting and Public Policy, 24(1), 521-531.
Boris, B. (2012). Enterprise risk management and firm performance: A Dutch perspective. Unpublished Ph.D. thesis, Department of Finance, University of Amsterdam, Netherland.
Casualty Actuarial Society, (2003) Enterprise risk management committee. Overview of enterprise risk management, May 2003. Available from http://www.casact.org/ research/erm/overview.pdf.
Chen, J., Blenman, L., & Chen, D. (2008). Does Institutional Ownership Create Value? The New Zealand Case. Quarterly Journal of Finance and Accounting. 47(4), 110-124.
Coskun, Y. (2013). Financial engineering and engineering of financial regulation: Guidance for compliance and risk management. Journal of Securities Operations & Custody, 6(1), 81-94.
COSO, (2004). Committee of sponsoring organizations of the tread way commission. Enterprise risk management–integrated framework: Executive summary.
Ezeosa, D. (2011). The strategic implications of Enterprise Risk Management: A framework. ERM symposium, Coventry University, United Kingdom.
Fadun, O. (2013). Risk management and risk management failure: Lessons for business enterprise. International Journal of Academic Research in Business & Social Sciences, 3(2), 225-241.
Gordon, L., Loeb, M. & Tseng, C. (2009). Enterprise risk management and firm performance: A contingency perspective. Journal of Accounting and Public Policy, 8(4), 301-327.
Hau, S., Guo, X., & Feng (2009). A study on the integration risk management for the insurance enterprise. Management Science and Enterprises, 3(1), 41-50.
Hoyt, R., & Liebenberg, A. (2006). The Value of Enterprise Risk Management: Evidence from the U.S. Insurance Industry. Available at: http://www.aria.org/meetings/2006papers/Hoyt_Liebenberg_ERM_070606.pdf
Hoyt, R.E. & Liebenberg, A. (2011). The value of enterprise risk management. Journal of Risk and Insurance, vol. 78(4), 795-822.
Jensen, M. (1993). The modern industrial revolution, exit, and the failure of internal control systems. The Journal of Finance, 48(3), 831-880.
Kleffner, A., Lee, R., & McGannon, B. (2003). The effect of corporate governance on the use of enterprise risk management: Evidence from Canada.  Risk Management and Insurance Review, 6(1), 53-73.
Kolapo, T., Ayeni, R., & Oke, M. (2012). Credit risk and commercial banks performance in Nigeria: A panel model approach. Australian Journal of Business and Management Research, 2(2), 31-38.
Koontz, H & Bradspies, R. (2002). Managing through feed forward control. Business Horizons, 2(1), 25-36
Lind, D., Michael, W., & Wathen, S. (2010). Statistical techniques in business and economic, (14th Edition). Boston: McGraw- Hill Irwin.
Li, Q., Wu, Y., Ojiako, U., Marshall, A. & Chipulu, M. (2014). Enterprise risk management and firm value within China’s insurance industry.  Acta Commercii, 14(1), 1-10.
Manab, N., Hussin, M., & Kassim, I. (2006) An empirical study on theory and practice of enterprise-wide risk management (EWRM) on internal auditing and risk management functions of public listed companies in Malaysia. Retrieved 10 June 2015, from: http://www.rmi.nccu.edu.tw/apria/docs/Concurrent%20IV/Session%201/14707EWRM_ APRIA_2007_New.doc.
Mojtaba, M & Davoud, S. (2007). Enterprise risk management and firm performance evidence from financial market of Iran. Research Journal of Management Sciences, 6(3), 6-12.
Nocco, B., & Stulz, R. (2006). Enterprise Risk Management: Theory and Practice. Journal of Applied Corporate Finance, 18(1), 8-20
O‟Connell, V., & Cramer, N. (2009). The relationship between firm performance and board characteristics in Ireland. European Management Journal, 28(5), 387-399.
Onafalujo, A., & Eke, P. (2012). Influence of enterprise risk management on competitive advantage in the Nigerian manufacturing sector. International Journal of Management Science, 3(3),95-101.   
Owojori, A., Akintoye, I., & Adidu, F. (2011). The challenge of risk management in Nigerian banks in the post consolidation era. Journal of Accounting and Taxation, 3(2), 23-31.
Pagach, D. & Warr, R. (2007). The characteristics of firms that hire chief risk officers. Journal of Risk and Insurance, 78(1), 185-211.
Rayan, K. (2008). Financial Leverage and Firm Value. Available at: http://upetd.up.ac. za/thesis/available/etd-03162010-143159/unrestricted/dissertation.pdf
Sharma, A. (2006). Financial leverage and firm's value: A study of the capital structure of selected manufacturing sector firms in India. The Business Review, 2(1), 70-76.
Shima, N., Mahmood, Z., Happy, M. & Akbar, A. (2013). Enterprise risk management and performance in Malaysia. Interdisciplinary Journal of Contemporary Research in Business, 5(1), 670-707.
Steiner, T. (1996). A Re-examination of the relationships between Ownership Structure, firm diversification, and Tobin's Q. Quarterly Journal of Business and Economics, 35(4), 39-48.
Stulz, R. (2003). Rethinking risk management: The revolution in corporate finance. Journal of Applied Corporate Finance, 9(3), 8-24.
Standard & Poor (2005). Evaluating the risk management practices of insurance to the corporate rating. Standard and Poor, New York.
Tahir, I., & Razali, A. (2011). The relationship between enterprise risk management (ERM) and firm value: evidence from Malaysian public listed companies. International Journal of Economics and Management Sciences, 1(2), 32-41.
Teoh, A., Lee, K., & Muthuveloo, R. (2017). The impact of enterprise risk management (ERM), strategic agility and quality of internal audit function on firm performance. International Review of Management and marketing, 7(1), 222-229.
Ugwuanyi, U. & Imo, G. (2014). Enterprise risk management and performance of Nigeria’s brewery industry. Developing Country Studies, 2(10), 60-67.