The 2008 global financial scandals have increased pressure on corporations to improve corporate governance practices particularly on risk management. As a response to the crisis, corporate governance reforms have been evidenced. Enterprise risk management (ERM) was introduced as one of the mechanisms that can improve corporate governance practices particularly on risk management. Since its introduction, ERM has received major attention from corporations. Despite the claim that ERM is the solution for corporate governance deficiency, the number of empirical research examining this new field is still limited. Thus, this study aimed at assessing the current development of ERM practices and identifying corporate governance characteristics that influence ERM implementation among Malaysian Shariah-compliant firms. The extent of ERM implementation was measured by using ERM Dimension index (ERMDi). A questionnaire survey was developed based on ERMDi to gather information on the extent of ERM practices. Four corporate governance characteristics were examined that are risk management committee (RMC), board size, proportion of non-executive directors and board expertise and its influence to ERM implementation. The data was analyzed by using Partial Least Squares and Structural Equation Modelling technique (PLS-SEM). Findings of this study show that the extent of ERM implementation among sample firms is at the moderate level and based on PLS-SEM analyses, board size and board expertise has a strong influence to ERM implementation. This study, find support that corporate governance characteristics have a positive and significant association with ERM implementation. The findings of this paper provide an additional empirical evidence regarding the extent of ERM practices and corporate governance characteristics that would influence ERM implementation among Malaysian Shariah-compliant firms.
Agha, S. E. U., & Sabirzyanov, R. (2015). Risk management in Islamic finance: An analysis from objectives of shari’ah perspective. International Journal of Business, Economics and Law, 7(3), 46–52.
Arena, M., Arnaboldi, M., & Azzone, G. (2011). Is enterprise risk management real? Journal of Risk Research, 14, 779–797. http://doi.org/10.1080/13669877.2011.571775
Asyraf, W. D. (n.d.). Principles and application of risk management and hedging instruments in islamic finance.
Beasley, M., Pagach, D., & Warr, R. (2008). Information conveyed in hiring announcements of senior executives overseeing enterprise-wide risk management processes. Journal of Accounting, Auditing & Finance, 23(3), 311–333.
Beasley, M. S., Clune, R., & Hermanson, D. R. (2005). Enterprise risk management: An empirical analysis of factors associated with the extent of implementation. Journal of Accounting and Public Policy, 24(6), 521–531. http://doi.org/10.1016/j.jaccpubpol.2005.10.001
Chin, W. W. (1998). The partial least squares approach to structural equation modeling. In G. A. Marcoulides (Ed.), Modern Methods For Business Research (pp. 295–358). Lawrence Erlbaum Associates, Mahwah.
Demidenko, E., & McNutt, P. (2010). The ethics of enterprise risk management as a key component of corporate governance. International Journal of Social Economics, 37(10), 802–815.
Frigo, M. L., & Anderson, R. J. (2011). Embracing enterprise risk management. COSO.
Gordon, L. a., Loeb, M. P., & Tseng, C.-Y. (2009). Enterprise risk management and firm performance?: A contingency perspective. Journal of Accounting and Public Policy, 28(4), 301–327. http://doi.org/10.1016/j.jaccpubpol.2009.06.006
Hair, J. F., Hult, G. T. M., Ringle, C. M., & Sarstedt, M. (2014). A primer on partial least squares structural equation modeling (PLS-SEM). SAGE Publications, Incorporated.
Harner, M. M. (2010). Ignoring the writing on the wall?: The role of enterprise risk management in the economic crisis. J. Bus. & Tech. L., 5(1), 45–58.
Henseler, J., Hubona, G., & Ash, P. (2016). Using PLS path modeling in new technology research?: Updated guidelines. Industrial Management & Data Systems, 116(1), 2–20. http://doi.org/10.1108/IMDS-09-2015-0382
Henseler, J., Ringle, C. M., & Sinkovics, R. R. (2009). The use of partial least squares path modeling in international marketing. Advances in International Marketing, 20, 277–319.
Kleffner, A. E., Lee, R. B., & McGannon, B. (2003). The Effect of Corporate Governance on the Use of Enterprise Risk Management: Evidence From Canada. Risk Management and Insurance Review, 6(1), 53–73. http://doi.org/10.1111/1098-1616.00020
Lai, F., & Fazilah, A. S. (2010). Enterprise risk management framework and the empirical determinants of its implementation. Risk, 6(7).
Laldin, M. A. (2008). Fundamentals and practices in Islamic finance. International Shari’ah Research Academy For Islamic Finance (ISRA).
Lewis, B. R., Templeton, G. F., & Byrd, T. A. (2005). A methodology for construct development in MIS research. European Journal of Information Systems, 14, 388–400. http://doi.org/10.1057/palgrave.ejis.3000552
Lewis, M. K. (2005). Islamic Corporate Governance, 9(1), 5–29.
Liebenberg, A. P., & Hoyt, R. E. (2003). The Determinants of Enterprise Risk Management: Evidence From the Appointment of Chief Risk Officers. Risk Management and Insurance Review, 6(1), 37–52. http://doi.org/10.1111/1098-1616.00019
Lundqvist, S. A. (2014). An exploratory study of enterprise risk management?: Pillars of ERM. Journal of Accounting, Auditing, and Finance, 29(3), 393–429. http://doi.org/10.1177/0148558X14535780
Mackenzie, S. B., Podsakoff, P. M., & Podsakoff, N. P. (2011). Construct measurement and validation procedures in MIS and behavioral research: Integrating new and existing techniques. MIS Quarterly, 35(2), 293–334.
McShane, M. K., Nair, A., & Rustambekov, E. (2011). Does Enterprise Risk Management Increase Firm Value. Journal of Accounting, Auditing, and Finance, 26(4), 64
In-Text Citation: (Maruhun, Abdullah, Atan, & Yusuf, 2018)
To Cite this Article: Maruhun, E. N. S., Abdullah, W. R. W., Atan, R., & Yusuf, S. N. S. (2018). The Effects of Corporate Governance on Enterprise Risk Management: Evidence from Malaysian Shariah-Compliant Firms. International Journal of Academic Research in Business and Social Sciences, 8(1), 864–876.
Copyright: © 2018 The Author(s)
Published by Human Resource Management Academic Research Society (www.hrmars.com)
This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at: http://creativecommons.org/licences/by/4.0/legalcode
