The Role of Risk Culture in Enterprise Risk Management Implementation

Mohamed Santigie Kanu

International Journal of Business and Management, 2021, vol. 15, issue 11, 13

Abstract: Enterprise Risk Management (ERM) and risk culture academics and practitioners have argued that they are inherently related without empirical evidence. They continue to advocate for their implementation by firms to face the dynamic business environment with certainty. The lack of empirical evidence to underpin this relationship partly contributes to their fragmented implementation and the lack of proper attention to risk culture in ERM implementation. The challenge in measuring these two abstract concepts contributes to their dichotomous measures in the literature, with most studies concentrated in the developed economies. The study objective is to provide a comprehensive measurement of the two constructs and empirically determine their relationship in the less-researched context of Africa. The study results empirically confirm risk culture and ERM to have a significant positive relationship. A firm's size and financial leverage were found to be significant determinants for ERM implementation, whereas capital opacity, financial slack, and board composition are not. Organizational leaders are advised by the study not to treat risk culture and ERM as substitutes but as complements. A sound risk culture provides a solid base for ERM implementation. Risk culture should be managed and developed in full alignment with the risk appetite and the ERM framework to improve organizational performance. These shall enable the promotion of a risk-aware culture and ingraining risk-related measures into performance management that help drive the organization forward. The constructs measures presented in the study can be used by academics and risk practitioners to determine the level of risk culture and ERM implementation in organizations.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:ibn:ijbmjn:v:15:y:2021:i:11:p:13

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