Modelling the Determinants, Barriers and Outcomes of Enterprise Risk Management Implementation

Abstract

Enterprise risk management (ERM) proponents held that implementing ERM to mitigate business risks in today’s more complex and challenging environment also adds value as well as beneficial. However, the extant literature on ERM implementation is limited, mixed and inconclusive while concentrated on some geographical jurisdictions. Not much is known about ERM implementation among Australian companies despite the emphasis given to effective risk management and its related disclosures by the Australian corporate governance authorities. This study developed and examined, using PLS-SEM, a path relationships model consisting of determinants, barriers and outcomes of ERM implementation among a sample of 2009 Top 300 Australian listed companies. PLS-SEM results were proven to have predictive quality in terms of ability and power. Empirical evidence shows that ERM is widely embraced by the sample firms as 85% of them implemented the holistic risk management approach while the extent of implementation was more likely greater among sample firms in services or regulated industries. Firms in services industries also gained more benefits from ERM implementation in terms of improved risk reporting, better-informed decisions, competitive advantage and increased probability of goals and objectives achievement. The model also highlights the importance of ERM implementation as the results revealed that ERM implementation not only positively impacted organisational performance directly but also mediated the impact of risk culture on financial and overall organisational performance. This is signalling the capability of ERM implementation to directly and indirectly (by mediating risk culture) improve broad organisational performance as, risk culture alone only conveyed direct positive influence on non-financial performance. Overall, the findings pertaining to causal relationships among the variables contribute evidence that the institutionalisation of ERM implementation among the sample firms were indeed aimed at minimising agency costs and risk information asymmetry while signalling efforts toward managing risks holistically and effectively to capital markets. Hence, this study supports the three underpinning theoretical frameworks while offering several theoretical and practical contributions.