Benefits of Enterprise Risk Management: A Systematic Review of Literature

Abstract

Objective: In an enhanced climate of risk complexities, the firm's stakeholders desire a risk management framework that promises the benefits of efficiencies, transparencies, and solutions for interrelated risks. Enterprise risk management (ERM) is widely seen as a suitable instrument to address these issues. However, not all are convinced of ERM's benefits. This necessitates a review of extant literature and collating it to generate interrelated insights. This paper reviews articles on ERM from the management and finance domain and catalogs the benefits of ERM. Methodology/Technique: This paper reviews 129 articles addressing ERM benefits. It examines the academic disciplines of journals publishing ERM studies by looking into their H Indices, SJR scores, and ABDC rankings to assess ERM's impact and acceptability among scholars. The research articles are analyzed for their subject domains, geographic scope, and methodology used in exploring the relationship between ERM adoption and its benefits to the firm. Collating and reviewing these articles enables the mitigation of data gaps. These studies were primarily from accounting, finance, management, corporate governance, and strategy domains. Findings: Improved cost-effectiveness, earnings stability, increased profitability, improved decision making, better risk communication, competitive advantage, better resource allocation, enhanced firm value, and performance are the key benefits of ERM adoption identified in this study. A knowledge gap is presented around assessing ERM benefits and extending ERM research scope to developing countries like India. Novelty: The study catalogs the benefits of ERM and makes a strong case for ERM adoption among firms. Type of Paper: Review JEL Classification: M10, M14, G30, G32 Keywords: Enterprise risk management (ERM); firm value; firm performance; ERM benefits; Covid19 Reference to this paper should be made as follows: Naik, S; Prasad, Ch.V.V.S.N.V. (2021). Benefits of Enterprise Risk Management: A Systematic Review of Literature, Journal of Finance and Banking Review, 5 (4): 28 – 35. https://doi.org/10.35609/jfbr.2021.5.4(3)

Organizational resilience as a key property of enterprise risk management in response to novel and severe crisis events

“…361, 362). This notion is also taken up by other ERM scholars: “building resilience against systematic failures and monitoring growth opportunities” (Naik & Prasad, 2021, p. 29). Resilience theory is, hence, considered to be a key contributor to and significant enhancement of ERM frameworks (Bogodistov & Wohlgemuth, 2017; Bresch et al, 2014; Fiksel, 2015; Ma'ady et al, 2022; Starr et al, 2003).…”

“…By managing the risks in a more systematic and comprehensive manner, ERM enables companies to reduce their risk of failure and, thereby, increase their performance and value (Gordon et al, 2009; Grace et al, 2015; Hoyt & Liebenberg, 2015; Naik & Prasad, 2021). A number of research papers has proven the general effectiveness of ERM systems: “The predominant view is that ERM engagement enhances firm performance” (Anton & Nucu, 2020, p. 13).…”

“…In response to large‐scale loss events or failures of risk management oversight, for example, financial market crisis or large‐scale frauds, companies set up a holistic ERM system, although not consistently defined in literature (Anton & Nucu, 2020; Bromiley et al, 2015; Ingram et al, 2014; Naik & Prasad, 2021), to identify, evaluate and manage risks at the enterprise level (Anton & Nucu, 2020). ERM measures the “downside risks” of a corporate strategy (Dickinson, 2001).…”

“…The analysis of past crises has led to the conclusion that risk culture and leadership have been important drivers of explaining shortcomings in such risk management systems (Ingram et al, 2014; Naik & Prasad, 2021; Santigie Kanu, 2020; Selamat & Ibrahim, 2018): “Weaknesses in risk culture are often considered a root cause of the global financial crisis, headline risks, and compliance events. A financial institution's risk culture plays an important role in influencing the actions and decisions taken by individuals” (Financial Stability Board [FSB], 2014).…”

Rancangan Manajemen Risiko Korporat Terintegrasi Pada Perusahaan Pertambangan Batu Bara Tahun 2023-2024

“…Ketika suatu perusahaan mempertimbangkan seluruh risiko-risiko yang dihadapi dan bagaimana risiko-risiko tersebut dapat berdampak pada strategi, proyek dan operasi, maka perusahaan telah memulai pendekatan suatu manajemen risiko terintegrasi (Hopkin, 2022). Manajemen risiko terintegrasi menggabungkan dua aspek dalam perusahaan yaitu aspek tata kelola perusahaan dan manajemen strategis dengan manajemen risiko itu sendiri (Naik & Prasad, 2021). Studi dari Hoyt & Liebenberg mengkonfirmasi peran manajemen risiko terintegrasi dalam menciptakan nilai, mengurangi risiko, meningkatkan kinerja, dan pengambilan keputusan strategis (Hoyt & Liebenberg, 2011).…”