ENTERPRISE RISK MANAGEMENT (ERM) PRACTICES AND FINANCIAL PERFORMANCE: EVIDENCE FROM LISTED INSURANCE FIRMS IN NIGERIA

Abstract

This study examined the Enterprise Risk Management (ERM) Practices on the performance of insurance firms in Nigeria. The study used panel and correlational designs in investigating the effect of ERM Practices measured by strategy and operations objectives of the Committee of Sponsoring Organisation (COSO) on the financial performance of insurance firms measured by Tobin’s Q. Secondary data obtained from the annual financial statements of the insurance firms for the periods of 2018-2022 were used in the analysis. The study used panel data regression model to estimate the relationship. The findings revealed the existence of a positive significant effect of strategic objectives on the financial performance of insurance firms in Nigeria. However, a negative significant effect of operational objective on the financial performance of insurance firms in Nigeria was documented. The study recommended that insurance firms in Nigeria should continue to ensure full conformity to the provision of COSO components while carrying out their business operation. They should also re-strategize and monitor their financial performance outcomes in line with their established objectives in order to attain the holistic application of ERM strategic objectives in the overall business operations.

Keywords

• Enterprise Risk Management
• Insurance Firms
• Financial Performance
• Nigeria

References

1. REFERENCES
2. Abere, O. J., & Saka, T. S. (2022). Enterprise risk management in the Nigerian insurance industry. BOHR International Journal of Advances in Management Research, 2(1), 22–28. [CrossRef]
3. Adesunkanmi, O. S., & Oluwasola, A. F. (2022). Moderating effect of internal control activities on risk assessment and performance of insurance companies in Nigeria. Gusau International Journal of Management and Social Sciences, 5(1), 18–26. [CrossRef]
4. Ahmed, I. (2016) The moderating effects of board equity ownership on the relationship between enterprise risk management practices and the performance of financial institutions in Nigeria. [Doctorial thesis], School of Economics, Finance and Banking, College of Business, Universiti Utara Malaysia, 163–187.
5. Alawattegama, K. K. (2018a). The Effect of Enterprise Risk Management (ERM) on Firm Performance: Evidence from the Diversified Industry of Sri Lanka, Journal of Management Research 10(1), 75–93. [CrossRef]
6. Alawattegama, K. K. (2018b). The impact of enterprise risk management on firm performance: Evidence from Sri Lankan banking and finance industry. International Journal of Business and Management, 13(1), 225–237. [CrossRef]
7. Ayodele, T. & Alabi, R. O. (2023). Risk management in Nigeria banking industry. Research Journal of Finance and Accounting, 5(2), 131–136. Baxter, R., Bedard, J. C., Hoitash, R., & Yezegel, A. (2013). Enterprise risk management program quality: Determinants, value relevance, and the financial crisis. Contemporary Accounting Research, 30(4), 1264–1295. [CrossRef]
8. Beasley, M. S., Clune, R., & Hermanson, D. R. (2019). Enterprise risk management: An empirical analysis of factors associated with the extent of implementation. Journal of Accounting and Public Policy, 24(6), 521–531. [CrossRef]

9. Callahan, C., & Soileau, J. (2017). Does enterprise risk management enhance operating performance?. Advances in Accounting, 37, 122–139. [CrossRef]
10. Choi, J. H., Choi, S. H., Myers, L. A., & Ziebart, D. (2019). Financial statement comparability and the informativeness of stock prices about future earnings. Contemporary Accounting Research, 36(1), 389–417. [CrossRef]
11. COSO (2004). Enterprise risk management,1–17. http://www.hcca-info.org/portals/0/pdfs/resources/conference_handouts/compliance_institute/2011/102-2.pdf Accessed on Dec 23, 2024. COSO, (2012). Enterprise Risk Management : Review of ERM. Risk Management, 1–21. Court, D. & Loch, M. (1999). Capturing the Value. Advertising Age, 70(46), 46–48. [CrossRef]
12. Dabari, I. J., & Saidin, S. (2015). Current State of Enterprise Risk Management Practices in the Nigerian banking industry. Journal of Business and Management, 17(6), 27–33.
13. Daniel, O. (2020). Modelling risk management in banks: Examining why banks fail. Dissertation Abstracts International Section A: Humanities and Social Sciences, 76.
14. Fadun, O. S. (2013). Promoting “enterprise risk management” adoption in business enterprises  : Implications and challenges, 2(1), 69–78.
15. Farrell, M., & Gallagher, R. (2015). The valuation implications of enterprise risk management maturity. Journal of Risk and Insurance, 82(3), 625–657. [CrossRef]
16. Florio, C., & Leoni, G. (2017). Enterprise risk management and firm performance: The Italian case. The British Accounting Review, 49(1), 56–74. [CrossRef]
17. Fraser, J. R. S., & Simkins, B. J., (2007). Ten common misconceptions about enterprise risk management. Journal of Applied Corporate Finance, 19(4), 75–81. [CrossRef]
18. Ghazali. Z. & Manab, N. A. (2013). Enterprise risk management and value creation: Initial findings amongst non-financial public listged companies in Malaysian bourse. Asian Economic and Financial Review, 3(7), 913–922.
19. Gill, A., Singh, M., Mathur, N., & Mand, H. S. (2014). The impact of operational efficiency on the future performance of Indian manufacturing firms. International Journal of Economics and Finance 6(10), 259–269. [CrossRef]
20. Hosseini, S. M. & Shiekhi, N. (2012). An empirical examination of competitive capability’s contribution toward firm performance: Moderating role of perceived environmental uncertainty. International Business Research, 5(5), 116–131. [CrossRef]
21. Hoyt, R. E., & Liebenberg, A. P. (2017). The value of enterprise risk management. Journal of Risk and Insurance, 78(4), 795–822. [CrossRef]
22. Idris, A. & Manab, N. A. (2016). Influence of enterprise risk management framework implementation and board equity ownership on firm performance in nigerian financial sector: An initial finding. Journal of Business and Management, 18(1), 61–68. International Monetary Fund (IMF). (2013). Nigeria: Financial sector stability assessment. International Monetary Fund. [CrossRef]
23. ISO31000. (2010). Risk Management Principles and Guidelines. http://www.iso.org/iso/home/standards/iso31000.htm Accessed on Dec 23, 2024. Jaccard, J., Guilamo-Ramos, V., Johansson, M., & Bouris, A. (2006). Multiple regression analyses in clinical child and adolescent psychology. Journal of Clinical Child and Adolescent Psychology, 35(3), 456–479. [CrossRef]
24. Kakanda, M. M., Salim, B., & Chandren, S. A. (2021). Corporate governance, risk management disclosure and firm performance: A theoritical and empirical review perspective. Asian Economic and Financial Review, 7(9), 836–845. [CrossRef]
25. Kanu, K. (2021). Impact of enterprise risk management (ERM) on firm performance: Evidence from the diversified industry. Journal of Management Research 11(1), 101–121.
26. Lam, J. (2014). Enterprise risk management: from incentives to controls. John Wiley & Sons. [CrossRef]
27. Mahat, N., Pandey, S., & Thapa, B. S. (2023). Enterprise Risk Management and Institutional Performance of Life Insurance Companies in Nepal. The Batuk, 9(1), 10–23. [CrossRef]
28. Malik, M. F., Zaman, M., & Buckby, S. (2020). Enterprise risk management and firm performance: Role of the risk committee. Journal of Contemporary Accounting & Economics, 16(1), Article 100178. [CrossRef]
29. Nasir, N. (2018). Effect of enterprise risk management on firm value: Empirical evidence from non-financial firms in Pakistan [Master’s thesis]. Capital University of Science and Technology. National Bureau of Statistics (2018). Nigerian gross domestic product report. Q4, 1-141.
30. National Insurance Commission. (2012). National insurance commission guideline for developing a risk framework for insurers and reinsurers in Nigeria. National Insurance Commission.
31. National Insurance Commission. (2018). Insurance Industry Annual Report. National Insurance Commission. https://nicgh.org/wp-content/uploads/2020/01/2018-NIC-Annual-Report.pdf Accessed on Dec 23, 2024.
32. National Insurance Commission. (2019). Insurance industry annual report. National Insurance Commission. https://home.treasury.gov/system/files/311/2019_FIO_Annual_Report.pdf Accessed on Dec 23, 2024.
33. National Insurance Commission. (2020). Insurance industry annual report. National Insurance Commission (NAICOM) fact book. https://www.iii.org/sites/default/files/docs/pdf/insurance_factbook_2020.pdf Accessed on Dec 23, 2024. Ogbonna, K. S., Akwam, O. P., Okonkwo, I. V., Okaro, C. O., & Adigwe, P. K. (2023). Financial technology and performance of financial institutions in sub-Saharan African economies: 2005-2021. African Banking and Finance Review Journal, 1(1), 83–99.
34. Oluwaleye, T. O., Ajemunigbohun, S. S., & Abiodun, K. E. (2023). Underwriting operations and financial performance: Evidence from non-life insurance firms in Nigeria. Business Economic, Communication, and Social Sciences Journal, 5(3), 167–176. [CrossRef]
35. Pagach, D. & Warr, R. (2007). An empirical investigation of the characteristics of firms adopting enterprise risk management, Working paper, North Carolina State University.
36. Poon, A. E., Roslan, N. H., Othman, J., Anuar, A., & Nejad, M. Y. (2022). The Effect of Enterprise Risk Management (ERM) Implementation on SMEs Performance in Malaysia. Malaysian Journal of Social Sciences and Humanities, 7(4), Article e001460. [CrossRef]
37. Price Water House Coopers (2018). Global top 100 companies by market capitalisation. Report, http://www.pwc.com/gx/en/audit-services/capital market/publications/top100 market capitalisation.jhtml Accessed on Dec 23, 2024.
38. Quon, T. K., Zeghal, D., & Maingot, M. (2012). Enterprise Risk Management and Firm Performance. Procedia - Social and Behavioral Sciences, 62, 263–267. [CrossRef]
39. Ramlee, R., & Normah, A. (2015) Panel data analysis on the effect of establishing the enterprise risk management on firms’performance. Proceedings of 4th European Business Research Conference 9 - 10 April 2015, Imperial College, London
40. Razali, A. R., & Tahir., L. M. (2011). Review of the literature on enterprise risk management. Business Management Dynamics, 1(5), 08–16. [CrossRef]
41. Salim, S. (2023). Promoting firm performance via board of directors effectiveness: A study of financial services companies In New Orleans. Journal of Management, Accounting, General Finance and International Economic Issues, 3(1), 16–31. [CrossRef]
42. Sayilir, Ö. & Farhan (2017). Enterprise risk management and Its effect on firm value in Turkey, 9(1), 86–99. [CrossRef]
43. Soring, A. (2018). The Long-Term Relationship between Enterprise Risk Management and Bank Performance: The Missing Link in Nigeria. Banks and Bank Systems, 13(1), 128–138. [CrossRef]
44. Tahir, I. M., & Razali, A. R. (2011). The relationship between enterprise risk management (ERM) and firm value: Evidence from Malaysian public listed companies. International Journal of Economics and Management Sciences, 1(2), 32–41.
45. Tseng, C. (2007). Internal control, enterprise risk management, and firm performance. Simth School of Business.
46. Usman O. A. (2009). Scale economies and performance evaluation of insurance market in Nigeria. Social Science Journal 4(1),1–11.
47. Wada, N. A., Naja’atu, B.R., & Dandago, K. I. (2023). Risk committee and risk disclosure quality: Evidence from listed insurance firms in Nigeria. Journal of Accounting Research, Organization and Economics, 6(2), 162–182. [CrossRef]
48. World Bank. (2013). Financial sector assessment program update. World Bank. https://openknowledge.worldbank.org/entities/publication/cd7aecf5-c8b4-5988-a52c-dafec1a6c068 Accessed on Dec 23, 2024.
49. Yang, S., Ishtiaq, M. and & Anwar (2018). Enterprise risk management practices and firm performance, the mediating role of competitive advantage and the moderating role of financial literacy. Journal of Risk and Financial Management, 11(32), 1–17. [CrossRef]
50. Yazid, A. S., Razali, A. R., & Hussin, M. R. (2011). Determinants of Enterprise Risk Management (ERM): A Proposed Framework for Malaysian Public Listed Companies. International Business Research, 5(1), 80–86. [CrossRef]
51. Zou, X. & Hassan, C. H. (2017). Enterprise risk management in China: The impacts on organisational performance. International Journal of Economic Policy in Emerging Economies, 10(3), 226–239. [CrossRef]