The Influence of Corporate Governance on Enterprise Risk Management Implementation: A Study on Non-Financial Public Listed Companies in Malaysia

Abstract

Despite attention given to ERM, particularly after the global financial crisis, Malaysia is still lagging behind in ERM implementation. The development and application of ERM is rather limited in practice. Policymakers, regulators and academics identify the combination of weaknesses in governance structures and failures in risk management as the key causes of the financial crisis. Strength of business performance and growth, depend on both ERM and corporate governance. Hence, this study investigates the influence of corporate governance on enterprise risk management (ERM) implementation. The subject of investigation is non-financial public listed companies (PLCs) of high-risk sectors in Malaysia. The high-risk sectors are utility, energy, and telecommunication and media. The dependent variable is ERM implementation proxy by ERM Score. The independent variable is corporate governance proxy by size of BOD, BOD independence, audit committee (AC) independence, AC financial education, size of risk committee (RC) and RC independence. Data are collected for 2016-2017 and analyze using regression analysis. The study finds size of BOD has positive significant relationship with ERM implementation. While, sector has significant negative relationship with ERM implementation. In the context of Malaysian PLCs of high-risk sectors, corporate governance influence ERM implementation. The size of the board is the significant driver "tone from the top" for ERM implementation. This conclusion leads to recommendations to regulators to emphasize the importance of board members' roles and responsibilities in providing risk oversight. In addition, a policy on minimum and maximum number of board members need to be develop in order to ensure effective risk management oversight.