MODERATING EFFECTS OF BOARD EQUITY OWNERSHIP ON THE RELATIONSHIP BETWEEN ENTERPRISE RISK MANAGEMENT, REGULATORY COMPLIANCE AND FIRM PERFORMANCE: EVIDENCE FROM NIGERIA
DOI:
https://doi.org/10.31436/ijema.v24i2.434Abstract
Risk management has become central to the financial sector development of any economy. The collapse of world leading financial institutions in 2008/2009 have raised questions about the role of risk management and compliance with regulatory provisions in shielding firms against failure. Also, the post adverse effects of the global economic meltdown have continued undermined the performance of financial institutions, Nigeria inclusive. The aim of this study is to examine the moderating effect of Board Equity Ownership on the relationship between ERM framework implementation, regulatory compliance and the non-financial performance of financial intuitions in Nigeria. The sample of the study consists of 163 financial institutions in Nigeria. We collected data from the chief risk officers and other top level managers of the organizations. The study utilized PLS-SEM path modelling with the help of SmartPLS 2.0 software to test the research framework. The findings revealed that ERM framework implementation and regulatory compliance have significant positive effects on the non-financial performance. Also, the study supported the third hypothesis that BEO strengthens the positive relationship between ERM framework adoption and the firm non-financial performance. In the case of compliance, the interaction effect (BEO*COP) did not influence the firm non-financial performance. The study recommended the need for regulatory agencies to encourage board equity ownership but with a caveat to prevent interest entrenchment that may lead to abuse.
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Baron, R. M., & Kenny, D. a. (1986). The moderator-mediator variable distinction in social psychological research: conceptual, strategic, and statistical considerations. Journal of Personality and Social Psychology, 51(6), 1173–1182.
Berenbeim, R. (2004). The value based enterprise: A new corporate citizenship paradigm. In The Asia Foundation’s Hong Kong Symposium on Corporate Citizenship and the Taipei Corporate Citizenship Forum October (pp. 27–29). Hong Kong,.
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Bertinetti, G. S., Cavezzali, E., & Gardenal, G. (2013). The effect of the enterprise risk management implementation on the firm value of European companies (No. 10/2013).
Brown, N. C., Pott, C., & Wömpener, A. (2013). The effect of internal control and risk management regulation on earnings quality: Evidence from Germany. Journal of Accounting and Public Policy, 33(1), 1–31.
Caldwell, J. E. (2012). A framework for board oversight of enterprise risk. Canada: Canada Institute of Chartered Accountants.
Casualty Acturial Society. (2003). Overview of enterprise risk management. Ontario Canada.
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Cohen, J. (1988). Statistical power analysis for the behavioral sciences (2nd ed.). London: Lawrence Erlbaum Associates Publisher.
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COSO. (2004). Enterprise risk management: Integrated framework executive summary (Vol. 3).
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Daud, N. W., Yazid, A. S., & Hussin, M. H. R. (2010). The effect of chief risk officer (CRO) on enterprise risk management (ERM) practices: Evidence from Malaysia. International Business & Economics, 9(11), 55–64.
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Dillman, D. A. (2007). Mail and internet surveys: The tailored design method, second ed. (2nd ed.). New York: John Wiley & Sons, Inc.
Doherty, N. A. (2000). Integrated risk management: Techniques and strategies for managing corporate risk. New York San Francisco Washington, DC: McGRAW HILL, INC.
Fornell, C., & Larcker, D. F. . (1981). Evaluating dysfunctional employee behaviors: A test of structural equation models with unobservable traditional and contingency theory postulates: The variables and measurement error. Journal of Marketing Research, 18(1), 39–50.
Gates, S. (2006). Incorporating strategic risk into enterprise risk management: A survey of current corporate practice. Journal of Applied Corporate Finance, 18(4), 81–90.
Gates, S., Nicolas, J., & Walker, P. L. (2012). Enterprise risk management: A process for enhanced management and improved performance. Management Accounting Quarterly, 13(3), 28–38.
Gatzert, N., & Martin, M. (2013). Determinants and value of enterprise risk management : Empirical evidence from the literature (No. November 23, 2013). Department for Insurance Economics and Risk Management. Friedrich-Alexander-University (FAU) of Erlangen-Nürnberg.
George, J. G., Imler, K., & Singer, N. (2007). Empowering the quality and regulatory compliance functions.
Gozman, D., & Currie, W. (2015). Managing governance, risk, and compliance for post-crisis regulatory change: A model of IS capabilities for financial organizations. Proceedings of the Annual Hawaii International Conference on System Sciences, 2015-March, 4661–4670.
Haenlein, M., & Kaplan, A. M. (2004). A beginner’s guide to partial least squares analysis. Understanding Statistics, 3(4), 283–297.
Hair, J. F., Hult, G. T. M., Ringle, C., & Sarstedt, M. (2014). A primer on partial least squares structural equation modeling (PLS-SEM). London: SAGE Publications, Incorporated.
Hair, J. F., Sarstedt, M., Ringle, C. M., & Mena, J. A. (2012). An assessment of the use of partial least squares structural equation modeling in marketing research. Journal of the Academy of Marketing Science, 40(3), 414–433.
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Hoyt, R. E., & Liebenberg, A. P. (2011). The value of enterprise risk management. Journal of Risk & Insurance, 78(4), 795–822.
Hoyt, R. E., & Liebenberg, A. P. (2015). Evidence of the value of enterprise risk management. Journal of Applied Corporate Finance, 27(1), 1–9.
Hoyt, R. E., Moore, D. L., & Liebenberg, A. P. (2008). The value of enterprise risk management: Evidence from the US insurance industry.
Ibuakah, I. (2012). Key issues & challenges in corporate governance reform in Nigeria. In International conference HHL Leipzig Graduate School of Management. Leipzig.
IMF. (2013). Nigeria : Financial sector stability assessment.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3(4), 305–360.
Kedia, S., Luo, S., & Rajgopal, S. (2016). Culture of weak compliance and financial reporting risk. In Conference on Culture, Performance and Financial Stability (pp. 1689–1699). Boston, USA.
Kelley, K., & Preacher, K. J. (2012). On effect size. Psychological Methods, 17(2), 137–152.
Kelman, H. C. (1958). Compliance, identification, and internalization three processes of attitude change. Journal of Conflict Resolution, 2(1), 51–60.
Lai, F. (2012). A review of enterprise risk management practices among Malaysian public listed companies. International Journal of Social, Business, Psychological , Human Science and Engineering, 6(8), 300–306.
Lai, F., & Azizan, N. A. (2012). Critical review of literature on enterprise risk management and the cost of capital: The value creation perspective. African Journal of Business Management, 6(9), 3126–3133.
Laitinen, E. K. (2004). Nonfinancial factors as predictors of value creation: Finnish evidence. Review of Accounting and Finance, 3(3), 84–130.
Lama, T. B. (2013). Empirical evidence on the link between compliance with governance of best practice and firms ’ operating results. Australasian Accounting Business and Finance Journal, 6(5), 63–80.
Lev, B. ., & Zarowin, P. (1999). The boundaries of financial reporting and how to extend them. Journal of Accounting Research, 37(2), 353–385.
Lin, Y., Wen, M. M., & Yu, J. (2012). Enterprise risk management: Strategic antecedents, risk integration, and performance. North American Actuarial Journal, 16(1), 1–28.
Manab, N. A. (2009). Enterprise wide risk management (EWRM) implementation, compliance and value creation among public listed companies (PLCs) in Malaysia. Faculty of Business Management. Universiti Teknologi Mara, Malaysia.
Manab, N. A., & Ghazali, Z. (2013). Does Enterprise Risk Management Create Value. Journal of Advanced Management Science Vol, 1(4), 358–362.
Manab, N. A., Kassim, I., & Hussin, M. R. (2010). Enterprise-wide risk management (EWRM) practices: between corporate governance compliance and value. International Review of Business Research Papers, 6(2), 239–252.
Martens, B., & Teuteberg, F. (2011). Risk and compliance management for cloud computing services : Designing a reference model. In Proceedings of the Seventeeth Americas Conference on Information Systems, Detroit, Michigan 4th-7th, August.
Meier, R. L. (2000). Integrating enterprise wide risk managment concepts into industrial technology curricula. Journal of Industrial Tecnology , 16(4), 1–15.
Mikes, A., & Kaplan, R. S. (2014). Towards a contingency theory of enterprise risk management. Harvard Business School Working Paper.
Moeller, R. R. (2007). COSO enterprise risk management: Understanding the new integrated ERM framework. Hoboken, NJ: John Wiley & Sons, Inc.
Moeller, R. R. (2011). COSO enterprise risk management: Establishing effective governance, risk and compliance processes.
Muller, S., & Supatgiat, C. (2007). A quantitative optimization model for dynamic risk-based compliance management. IBM Journal of Research and Development, 51(3.4), 295–307.
Murphy, K. R., Myors, B., & Wolach, A. (2014). Statistical power analysis: A simple and general model for traditional and modern hypothesis tests (4th ed.). New York: Routledge.
Olamide, O., Uwalomwa, U., & Ranti, U. O. (2015). The effect of risk management on bank’s financial performance in Nigeria. Journal of Accounting and Auditing: Research & Practice, 2015(1), 1–7.
Olson, D. L., & Wu, D. (2015). Enterprse risk management in finance (1st ed.). London: Palgrave Macmillan.
Olusegun, A. A., Ganiyu, S. O., & Oluseyi, A. A. (2013). The impact of financial development on economic growth. American Journal of Business and Management, 2(4), 347–356.
Paape, L., & Spekle, R. F. (2012). The Adoption and design of enterprise risk management practices: An empirical study. European Accounting Review, 21(3), 533–564.
Pergola, T. M., Joseph, G. W., & Jenzarli, A. (2009). Effects of corporate governance and board equity ownership on earnings quality. Academy of Accounting and Financial Studies Journal, 13(4), 87–114.
PricewaterhouseCoopers. (2004). Managing risk: An assessment of CEO perspectives.
Rettab, B., Brik, A. Ben, & Mellahi, K. (2009). A study of management perceptions of the impact of corporate social responsibility on organisational performance in emerging economies: The case of Dubai. Journal of Business Ethics, 89, 371–390.
Riley, R. A., Pearson, T. A., & Trompeter, G. (2003). The value relevance of non-financial performance variables and accounting information: The case of the airline industry. Journal of Accounting and Public Policy, 22(3), 231–254.
Rosen, D., & Zenios, S. A. (2001). Enterprise-wide asset and liability management: Issues, institutions and models. Nicosia, Cyprus.
Saeidi, P., Sofian, S., Zaleha, S., & Abdul, B. (2014). A proposed model of the relationship between enterprise risk management and firm performance. International Journal of Information Processing and Management, 5(2), 70–80.
Salkind, N. J. (1997). Exploring Research (3rd ed.). Upper Saddle River, NJ: Prentice Hall.
Sanusi, L. S. (2010). Global financial meltdown and the reforms in the nigerian banking sector.
Sarstedt, M., Ringle, C. M., Smith, D., Reams, R., & Hair, J. F. (2014). Partial Least Squares Structural Equation Modeling (PLS-SEM): A useful tool for family business researchers. Journal of Family Business Strategy, 5(1), 105–115.
Sattler, H., Völckner, F., Riediger, C., & Ringle, C. M. (2010). The impact of brand extension success drivers on brand extension price premiums. International Journal of Research in Marketing, 27(4), 319–328.
Schmit, J. T., & Roth, K. (1990). Cost effectiveness of risk management practices. Journal of Risk and Insurance, 455–470.
SEC. (2011). Code of corporate governance for public companies in Nigeria.
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Published
2016-11-29
How to Cite
Ahmed, I., & Abdul Manab, N. (2016). MODERATING EFFECTS OF BOARD EQUITY OWNERSHIP ON THE RELATIONSHIP BETWEEN ENTERPRISE RISK MANAGEMENT, REGULATORY COMPLIANCE AND FIRM PERFORMANCE: EVIDENCE FROM NIGERIA. International Journal of Economics, Management and Accounting, 24(2), 163–187. https://doi.org/10.31436/ijema.v24i2.434
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