Moderating Effect of Enterprise Risk Management on the Relationship Between Board Structures and Corporate Performance

Abstract

Risk encroachment into Corporate Governance (CG) remains a continuous process that required an efficient and long-term solution. Using enterprise risk management (ERM) as a moderating variable on the relationship between board structures and corporate performance remains an area unexploited in CG research. This relationship can effectively measure by the extent of ERM interactions between board structures and corporate performance. Despite various studies on CG mechanisms, firm performance, ERM implementation level, and gender diversity, the empirical results appeared inconclusive and the findings are inconsistent. None of the studies have addressed the role play by ERM as a moderator between director ownership, the board size, board independence, the total number of women on the board, number of Muslim directors on the board, and firm performance. It is demonstrated that the ERM has the potential to moderate between the different board structures and corporate performance, and this moderation has never been reported in the literature. It is expected that this ERM moderation may considerably improve corporate performance by determining the strength or weakness of the relationship between board structures and firm performance. Thus, this paper, with regards to available literature, conceptualized that ‘ERM’ moderates the relationship between Board Size, Board Independence, Director Ownership, Total Women in the Board, Muslim directors on the Board, and corporate performance.

The role of managerial ownership, independent commissioners, and corporate social responsibility, moderated by enterprise risk management, on company value in the pharmaceutical industry listed on the Indonesia Stock Exchange (IDX) from 2018 to 2022

“…This indicates that 𝐻0 is rejected, and H1 is accepted, meaning that Independent Commissioners moderated by Enterprise Risk Management (𝑋2 * 𝑀) have a positive and significant partial effect on Company Value (𝑌). This result is consistent with the research of Shatnawi (2019). This occurs due to the effective and well-functioning supervisory function of Independent Commissioners, which encourages the implementation of good governance.…”

“…Farrell's research (2019) states that companies demonstrating higher levels of ERM maturity have improved operational performance and higher Company Value. Shatnawi's research (Shatnawi et al, 2019) states that ERM has a strong potential to moderate the relationship between Managerial Ownership and Company Value. It also shows that ERM has a strong impact moderating Independent Commissioners on Company Value.…”

Introduction of a Corporate Security Risk Management System: The Experience of Poland

“…Second is criteria for the evaluation of decisions by superiors changing during the activity and inconsistency of the first party. It is probably the worst thing that can happen and generates not only "unhealthy" bureaucracy in the company (Shatnawi et al 2019). The historical reevaluation of the decisions of subordinates according to the "new" criteria that arise suddenly and the very fact of unilateral change of these criteria (process regulations) give rise to mutual irresponsibility and demotivation in decision-making.…”