Implementation of Enterprise Risk Management Practices in Organizations: An Empirical Analysis of Takaful Industry Financial Performance

Abstract

In the E&Y global report on Takaful industry, it has been observed consecutively that an ineffective Enterprise Risk Management (ERM) is among the top five business risks of the Takaful Industry. The present study has been conducted with an aim to find the impact of Enterprise Risk Management (ERM) Implementation on the Financial Performance of the world Takaful Industry. In this regard, ERM implementation level has been measured through the availability of Chief Risk Officer (CRO), Establishment of a Risk Management Committee in the firm, the Board Independence level within firm, the hiring of an auditor from big four auditors firm, firm size, percentage of institutional ownership in the shareholding structure, the operational diversification of a firm (national or international) and the percentage change in the revenues of the firm. There are two control variables in the study that are age and Gross Domestic Product (GDP). On the other side the financial performance is measured in terms of accounting performance and market performance. For this purpose two financial performance indicators Return on Assets (ROA), Return on Equity (ROE) have been used. A sample of 30 Takaful Firms from 10 countries has been taken for a period of 4 years (2012)(2013)(2014)(2015). The study is quantitative in nature and secondary data has been used for this purpose. Hypotheses are being tested one by one through correlation and regression analysis by using Stata and Eviews. The results of the study indicate that majority of the hypothesis are accepted and shows a positive impact of ERM Implementation on the Financial Performance of the Takaful Industry.

The Moderating Role of Organizational Culture on the Relationship between Enterprise Risk Management Dimensions and Financial Performance in Manufacturing Companies: A Theoretical Framework

“…Shad et al (2019) discovered that implementing an effective ERM through internal factors has a considerable positive impact on a company's overall performance. Furthermore, Omar and Javaria (2019) assessed the impact of ERM implementation on the worldwide Takaful Industry's financial performance using a sample of thirty Takaful Companies from 2012 to 2015 in (Saudi Arabia, the UAE, Bahrain, Bangladesh, Kuwait, Qatar, Malaysia, Pakistan, Sri Lanka, and Oman). They evaluated the ERM implementation based on internal and external factors, structure, and governance, and discovered that the ERM implementation had a positive impact on the Takaful Industry's financial performance.…”

“…They evaluated the ERM implementation based on internal and external factors, structure, and governance, and discovered that the ERM implementation had a positive impact on the Takaful Industry's financial performance. Furthermore, certain empirical research has demonstrated that internal factors like ERM practise drivers have a favourable and considerable influence on firms' financial performance (e.g., Shad et al, 2019;Omar & Javaria, 2019;Malik et al, 2020;Saeidi et al, 2021;Yudianto et al, 2021;Jean-Jules & Vicente, 2021). According to the Agency Theory, putting in place a robust risk management system with elements like ERM dimensions ("internal factors, external factors, structure, and process") could boost overall business performance and shareholder value (Omar & Javaria, 2019;Setapa et al, 2020;Saeidi et al, 2021;Yudianto et al, 2021;Jean-Jules & Vicente, 2021).…”

“…Furthermore, certain empirical research has demonstrated that internal factors like ERM practise drivers have a favourable and considerable influence on firms' financial performance (e.g., Shad et al, 2019;Omar & Javaria, 2019;Malik et al, 2020;Saeidi et al, 2021;Yudianto et al, 2021;Jean-Jules & Vicente, 2021). According to the Agency Theory, putting in place a robust risk management system with elements like ERM dimensions ("internal factors, external factors, structure, and process") could boost overall business performance and shareholder value (Omar & Javaria, 2019;Setapa et al, 2020;Saeidi et al, 2021;Yudianto et al, 2021;Jean-Jules & Vicente, 2021). ERM experts contend that ERM lowers earning and stock price volatility, lowers external capital expenses, and increasing capital efficiency, improves enterprises, and boost shareholder value (Saeidi et al, 2021).…”

“…ERM is thought to lower an organization's overall risk of failure and improve financial performance by selecting a CRO, assisting top management, and teaching and training staff in risk management (Yudianto et al, 2021;Faisal et al, 2021;HOA et al, 2021;Poon et al, 2022). Moreover, based on the resource-dependence theory (RDT) which notes that internal factors as one of the dimensions of ERM have become an important source and a robust risk management approach in all financial and non-financial industries (Shad et al, 2019;Omar & Javaria, 2019;Malik et al, 2020;Setapa et al, 2020;Saeidi et al, 2021). Therefore, the following hypothesise is suggested in this study: H1: Internal factors as a dimension of ERM positively affect manufacturing firms' financial performance.…”

Competitiveness of Islamic Financial System: An Empirical Analysis of Internal and External Factors Infuence on Pakistan Islamic Bank’s Proftability

“…As reported by, , in their study that all interest-free banks have greater or excess liquidity. In addition, Hamid and Azmi (2011), argues that in the absence of local capital market the interest-free banks were suffering from investing in liquidity projects, all their idle funds (Masood & Kiran, 2019). As the interest-free and interest-based banks are operating at different principles.…”