The Adoption and Design of Enterprise Risk Management Practices: An Empirical Study

Abstract

Using data from 825 organizations, we examine (1) the extent of ERM implementation and the factors that are associated with cross-sectional differences in the level of ERM adoption, and (2) specific ERM design choices and their effect on perceived ERM effectiveness. Broadly consistent with previous work in this area, we find that the extent of ERM implementation is influenced by the regulatory environment, internal factors, ownership structure, and firm and industry-related characteristics. As to ERM effectiveness, we find that organizations generally subscribe to a key premise of the COSO ERM framework, i.e. that ERM should address the full set of risks that affect the entity's strategic, operational, reporting, and compliance objectives. However, our results also raise some concerns as to the COSO framework. Particularly, we find no evidence that application of the COSO framework improves ERM effectiveness. Neither do we find support for the mechanistic view on risk management that is implicit in COSO's recommendations on risk appetite and tolerance.

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

“…ERM is supposed to minimize direct and indirect costs of financial distress, earnings volatility, and negative shocks in financial markets, as well as improve the decision-making process to select the best investment opportunities (Beasley et al 2008;Hoyt and Liebenberg 2011;Paape and Speklè 2012). Numerous internal fences and lack of resources compel SMEs to approach ERM practices to avoid poor performance and to enhance their survival in competitive markets (Unnikrishnan et al 2015).…”

Organisational culture and enterprise risk management: The Australian not‐for‐profit context

“…Mikes and Kaplan (2015) term studies in the third stream 'selection studies', which examine drivers of ERM implementation/maturity. 1 This stream of research has been conducted in the U.S. context (Beasley et al, 2005(Beasley et al, , 2015, the Canadian context (Kleffner et al, 2003), the Malaysian context (Golshan & Rasid, 2012) and the European context (Lundqvist, 2015;Paape & Speklè, 2012). In examining factors that influence ERM implementation/maturity, prior research has largely focused on factors such as organisational size, financial leverage, the presence of a risk committee, board characteristics and level of institutional ownership.…”

“…Although there are various definitions of ERM in the literature, ERM is commonly known as an integrated approach for identifying, assessing, and managing risks in a way that all risks are addressed simultaneously instead of separately (Bromiley, McShane, Nair, & Rustambekov, 2015;Paape & Speklè, 2012). Prior academic research into ERM has been directed towards examining factors affecting ERM implementation, primarily in the for-profit context.…”

“…Those factors have typically related to characteristics such as organisational size (e.g. Beasley et al, 2005Beasley et al, , 2015Paape & Speklè, 2012;Pagach & Warr, 2011), financial leverage (e.g. Golshan & Rasid, 2012;Liebenberg & Hoyt, 2003;Pagach & Warr, 2011), level of institutional ownership (e.g.…”

“…Golshan & Rasid, 2012;Liebenberg & Hoyt, 2003;Pagach & Warr, 2011), level of institutional ownership (e.g. Golshan & Rasid, 2012;Liebenberg & Hoyt, 2003;Paape & Speklè, 2012) and the installation of formal risk management policy statements, risk committees and risk reporting within organisations' internal structures (e.g. Beasley, Branson, & Pagach, 2015;Kleffner, Lee, & McGannon, 2003).…”