Impact of ERM Implementation on Firms Financial Performance
Moderating Role of Corporate Governance Evidence from Emerging Economies
Abstract
Enterprise Risk Management (ERM) has become one of the most important strategic frameworks in an organization that is attempting to navigate the uncertainties and improve decision-making in a highly volatile and complex world. In certain cases especially in the emerging economies where the firms are subjected to unstable markets, changing regulations, and institutional difficulties, the adoption of ERM is increasingly viewed as one way of leading to sustainable performance. Nevertheless, the achievement of the financial benefits of ERM is not steady enough, and the need to discuss the circumstances in which ERM can be value-generating. The present research will examine ERM implementation and financial performance of firms in terms of ROA, ROE and Q of Tobin with a moderating factor of presence of a corporate governance (CG). We use a multi-country panel dataset of Pakistan, Indonesia, and Malaysia (20192024) to estimate the effect of the governance structures on the ERMperformance relationship using a fixed-effects regression. The findings show that ERM has a positive impact on financial performance although its impact is much pronounced in companies with sound governance structures. Moreover, CG moderating effect is not the same in all countries with the strongest CG moderating effect being observed in more institutionally developed societies such as Malaysia. The paper finds that the governance quality is an important catalyst as it turns ERM into a value-generating strategic asset instead of a procedural exercise. These findings can provide real-world suggestions to companies, investors, and regulators operating in the emerging markets with the need to match risk management and governance excellence to promote resilience and sustainable development.
Keywords:
Enterprise Risk Management, Corporate Governance, Firm Financial Performance, Emerging Economies
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