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Enterprise risk management and firm performance: Role of the risk committee

Muhammad Farhan Malik, Mahbub Zaman and Sherrena Buckby

Journal of Contemporary Accounting and Economics, 2020, vol. 16, issue 1

Abstract: In recent years, there have been increasing efforts in the corporate world to invest in risk management and governance processes. In this paper, we examine the impact of Enterprise Risk Management (ERM) on firm performance by examining whether firm performance is strengthened or weakened by the establishment of a board-level risk committee (BLRC), an important governance mechanism that oversees ERM processes. Based on 260 observations from FTSE350 listed firms in the UK during 2012–2015, we find the effectiveness of ERM significantly and positively affects firm performance. We also find strong BLRC governance complements this relationship and increases the firm performance effects of ERM. Our findings suggest the mere formation of a BLRC is not a panacea for ERM oversight; however, existence of a structurally strong BLRC is crucial for effective ERM governance.

Keywords: Enterprise risk management; Risk committee; Risk governance; Firm performance (search for similar items in EconPapers)
JEL-codes: G32 G34 L25 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jcae.2019.100178

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Journal of Contemporary Accounting and Economics is currently edited by Agnes C.S. Cheng, P. Clarkson, F.A. Gul, Zoltan Matolcsy, Dan Simunic and Ben Srinidhi

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