The Influence of Enterprise Risk Management on the Performance of Kenyan State-Owned Corporations

Abstract

The Influence of Enterprise Risk Management on the Performance of Kenyan State-Owned Corporations 1. Introduction Risk management issues have grown in importance within the context of both non-financial and financial organizations undoubtedly with the reason that the business environment is rapidly changing and constantly hardening (Kosmala, 2014; Verlag, 2014). According to Culp (2002), the discussion of risk management is still considered odd by several organizations especially in the non-financial sector. Enterprise risk management (ERM) enhances organizations' effective management and assessment of risks, in a timely and efficient manner, which in turn enables top management to re-evaluate and improve overall performance of the organization in the dynamic operating environment (Lundqvist, 2014). There is an increase in literature tending to link performance and risk management in organizations globally (Rizzi et al, 2011). However, in as much as organizations acknowledge the importance of ERM on performance, it is similarly important to understand whether this linkage applies across all organizations and how other factors may influence this relationship (Brustbauer, 2014). Kenyan state owned corporations (SCs) are created to facilitate government in fulfilling its core responsibility of achieving sustained socioeconomic development (Kobia & Mohamed, 2006). These state agencies are therefore expected to participate in policy implementation and revamping service delivery across the public sectors including; energy, transport, infrastructure, health, communications, tourism, agriculture and education to ultimately attain the aspirations of the country's Vision 2030 (KIPPRA, 2009). Despite the vital role of SCs in delivering of government's core objectives, SCs are experiencing unprecedented risks emanating from the macro-environment and impacting on their performance (PWC, 2012). This has brought to question the performance of SCs when compared to their heavy running budgets that burdens the citizens (Kobia & Mohamed, 2006). Accordingly, the government of Kenya under its public sector reforms programme, institutionalized ERM in SCs under the aegis of government performance contracting (PWC, 2012). However, the scant research on the relationship between ERM and the performance of SCs has offered mixed findings (McShane et al., 2011). Additionally, the adoption of this growing practice is seemingly slow (PWC, 2015). It is for this reason that a review of the influence of Enterprise risk management on the performance of State Corporations, ought to be undertaken, thus the impetus for this study. 2. Literature Review This study reviewed the theories pertinent to ERM and performance. These include; Contingency theory of ERM (Kaplan & Mike, 2014) and Stakeholder theory (Freeman, 1984) supported by Upper Echelon theory, (Hambrick & Mason, 1984) and Open systems theory (Ansoff & McDonnell, 1990). Kaplan and Mike (2014) advanced Contingency theory of ERM, which posits that strategic risk management practice may be more e...

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