Enterprise Risk Management Practices and Firm Performance, the Mediating Role of Competitive Advantage and the Moderating Role of Financial Literacy

Abstract

In the current turbulent market, firms spend lots of tangible and intangible resources to gain competitive advantage and superior performance. Prior studies have discussed several determinants of competitive advantage and performance, particularly in developed economies, whereas small-and medium-sized enterprises (SMEs) in emerging economies have received minor attention. This study examines the mediating role of competitive advantage between enterprise risk management practices and SME performance and the moderating role of financial literacy between enterprise risk management practices and competitive advantage. A structured questionnaire is used to collect data from 304 SMEs operating in the emerging market of Pakistan. The hypotheses of the proposed study are tested through Structural Equation Modeling (SEM) in Analysis of a Moment Structures (AMOS). The results indicate that enterprise risk management practices significantly influence competitive advantage and SME performance. Competitive advantage partially mediates the relationship between enterprise risk management practices and SME performance. Additionally, financial literacy significantly moderates the relationship between enterprise risk management practices and competitive advantage. Firms are advised to implement formal enterprise risk management practices to gain competitive advantage and superior performance. Top managers need to have enough financial education that they will be able to perform risk management practices in an efficient way to gain a competitive position in the market. Implications for practices have been discussed in detail.

The Role of Government Support in Sustainable Competitive Position and Firm Performance

“…Our findings indicate a significant positive influence of SCP on firm performance which supported H5 of the study. Our findings are consistent with Yang, Ishtiaq and Anwar [7] who scrutinized that a firm competitive position can boost its performance in the turbulent market. As claimed by Schrettle et al [48], a sustainable position or sustainability is deemed a significant driver to enhance a firm performance in future both in developed and developing economies.…”

“…More preciously, Porter [33] suggests that a firm can gain cost based sustainable competitive position by reducing different types of costs related to material, operation, management and adverts as well as can gain differentiation based sustainable competitive position by offering unique products and services which may not be offered by competitors. Studies, from this perspective, have concluded that both cost-based and differentiation based competitive advantage/position can improve profitability and performance of firms Lechner and Gudmundsson [5,7,34]. Therefore; Hypothesis 5 (H5).…”

“…Researchers, in this perspective, are recommended a self-reported approach to measure SMEs performance for example [34,41]. In the present study, we used 8 items for SMEs performance adopted from the prior studies of yang, Ishtiaq and Anwar [7] and Anwar [41]. The respondents were asked how they rate their firm performance based on return on equity, return on assets and market growth compared to their major competitors since last three years.…”

“…Despite having a substantial contribution of SMEs (results of entrepreneurship) to GDP, economic growth and sustainable development goals, there is a high failure ratio of ventures across the globe [5]. Studies, in this perspective, have been discussed a variety of determinants which may affect success for example, [6,7] and failure of SMEs [8,9]. Due to the lack of resources and capabilities, SMEs need not only financial support but also equally required non-financial support to survive in the turbulent markets.…”

Enterprise Performance Analysis of the Selected Service Sector by Applying Modern Methods with an Emphasis on the Creation and Application of the Modified Creditworthy Model (MCWM)

“…Authors constructed new 3D Enterprise Risk Model (ERM) that is a suitable risk management tool for assessing and predicting the risk impact on the enterprise performance. As reported byYang, Ishtiaq, Anwar (2018), ERM has a significant influence on competitive advantage and increase of performance Kiseľáková, Horváthová, Šofranková, Šoltés (2015). conclude that the most significant impact on performance of the enterprises has just financial risk.…”