Enterprise Risk Management Practices and Firm Performance

Enterprise Risk Management (ERM) constitutes a holistic framework through which organisations identify, assess and address a spectrum of risks that may impede their strategic objectives. By integrating risk governance at board and executive levels, ERM seeks to align risk appetite with corporate strategy, enhance decision-making and foster resilience in the face of uncertainty. Recent studies underscore the role of ERM in improving both financial and non-financial outcomes, including return on assets, equity and market valuation metrics. Effective ERM practices encompass risk identification, quantification, mitigation and continuous monitoring, supported by a clear risk culture and robust internal controls. The interplay between ERM and firm performance is moderated by factors such as intellectual capital, organisational structure and external environment, resulting in varied linear and non-linear relationships across sectors and geographies. As global markets confront systemic challenges, from financial volatility to climate change, ERM emerges as a strategic asset that can elevate corporate governance standards and drive sustainable value creation.

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Enterprise Risk Management Practices and Firm Performance publication trend

The graph below shows the total number of articles in enterprise risk management practices and firm performance across all publications each year (not limited to Nature Index journals).

Technical terms

Enterprise Risk Management (ERM): A coordinated approach to identify, assess and manage risks across an entire organisation to align risk appetite with strategic objectives.

Firm Performance: Quantitative and qualitative measures of organisational outcomes, including financial metrics (e.g. return on assets, return on equity) and market indicators (e.g. Tobin’s Q).

Intellectual Capital: Collective intangible assets of a firm, encompassing knowledge, information systems, organisational culture and human expertise that contribute to value creation.

Tobin’s Q: A ratio comparing a firm’s market value to the replacement cost of its assets, used as an indicator of market valuation efficiency.

References

1. Proposed Framework and Method for Integrating Risks into an Organizational Setting. Journal of Enterprise and Business Intelligence (2023).
2. Enterprise Risk Management: A Literature Review and Agenda for Future Research. Journal of Risk and Financial Management (2020).
3. The influence of enterprise risk management on firm performance with the moderating effect of intellectual capital dimensions. Economic Research-Ekonomska Istraživanja (2020).
4. Enterprise risk management and firm performance: Empirical evidence from Ghana equity market. Cogent Economics & Finance (2020).