The Impact of Enterprise Risk Management on Firm Performance by Fraud Detection in Iran, Iraq, And Saudi Arabia

Abstract

The current study investigates the effect of enterprise risk management (ERM) on the firm performance of capital markets of developing countries, including Iran, Saudi Arabia, and Iraq. Design/methodology/approach: To obtain the main objective of the study, the economic contexts of three neighbouring and developing countries of Iran, Iraq, and Saudi Arabia were investigated from 2012 to 2019. Panel regression analysis was used to test the hypotheses. Findings: The findings indicated that ERM could increase return on assets and decrease the total assets of Iranian firms while increasing the total assets of Iraqi firms. In addition, the obtained results showed that ERM reduced sales growth and increased net profit margins in Saudi Arabian firms. Regarding the fraudulent firms, it was found that ERM increased the return on assets in Iranian firms and sales growth in Saudi Arabian firms while decreasing the sales growth in Iraqi firms. It was also revealed that total asset turnover increased in non-fraudulent Iranian firms but decreased in their Iraqi counterparts. The current study's findings provided strong evidence for the financial conditions and performance of firms operating in developing countries. Accordingly, it can be concluded that ERM efficiency and firm performance can be affected by the nature and structure of that firm, as the findings of these three economic contexts were fundamentally different. Originality/value: The present study enriched the literature on ERM as one of the critical factors affecting firm performance in emerging economies with different capital market rules. In addition, the literature and obtained results show the extent of fraud and its impact on the performance of firms in developing countries.