The Moderating Effect of Human Capital on the Relationship between Enterprise Risk Management and Organization Performance
Abstract
In today’s challenging global economy, risk management is encountering a significant transformation. Organizations are switching their risk management method to enterprise-wide from the traditional compartmentalized approach. Enterprise risk management (ERM), which aims at increasing the sustainability of an organization and achieving competitive advantage, is gaining global attention and fast becoming an essential concern in all industries. Despite the importance of the knowledge embedded in people in the current knowledge-based economy, there remains a paucity of evidence concerning how human capital could influence the organization’s ERM. Based on the Resource-based view (RBV) theory, this study analyses the correlation between ERM, human capital, and performance in Malaysian public listed companies (PLCs). For this study, 500 questionnaires had been distributed, and 116 responses were obtained. Structural Equation Modeling (SEM) had been used to assess the fitness of the conceptual model. This study found a significant relationship between ERM and organizational performance, and this relationship is moderated by human capital. This study contributes to the ERM literature by providing empirical evidence on the relationship of ERM, human capital, and organizational performance. Findings from this study also provide guidelines for managers, policymakers, and the regulatory bodies to evaluate the ERM practices in PLCs.
References
Abd Razak, N., Ab Rahman, Z., & Borhan, H. (2016). Modeling Firm Resources-Enterprise Risk Management Relationships: An Empirical Finding Using Pls-Sem. World Journal of Entrepreneurship, Management and Sustainable Development, 12(1), 35-49. https://doi.org/10.1108/WJEMSD-05-2015-0026
Abdullah, M. A., & Abdul-Shukor, Z. (2017). The Comparative Moderating Effect of Risk Management Committee and Audit Committee on the Association Between Voluntary Risk Management Disclosure and Firm Performance. Jurnal Pengurusan, 51, 159 - 172. https://doi.org/10.17576/pengurusan-2017-51-14
Abdullah, M. A., Abdul-Shukor, Z., Ahmad, A., & Muhammadun, Z. (2015). Risk management disclosure: A study on the effect of voluntary risk management disclosure toward firm value. Journal of Applied Accounting Research, 16(3), 400-432. https://doi.org/10.1108/JAAR-10-2014-0106
Abdul Rasid, S. Z., Isa, C. R., & Wan Ismail, W. K. (2014). Management Accounting Systems, Enterprise Risk Management and Organizational Performance in Financial Institutions. Asian Review of Accounting, 22(2), 128-144. https://doi.org/10.1108/ARA-03-2013-0022
Aebi, V., Sabato, G., & Schmid, M. (2012). Risk Management, Corporate Governance, and Bank Performance in the Financial Crisis. Journal of Banking & Finance, 36(12), 3213-3226. https://doi.org/10.1016/j.jbankfin.2011.10.020
Akio, T. (2005). The Critical Assessment of the Resource-Based View of Strategic Management. Ritsumeikan international affairs, 3(2), 125-150.
Al-Dhaafri, H. S., Al-Swidi, A. K., & Yusoff, R. Z. B. (2016). The Mediating Role of Total Quality Management between the Entrepreneurial Orientation and the Organizational Performance. The TQM Journal, 28(1), 89-111. https://doi.org/10.1108/TQM-03-2014-0033
Al Lami, M. F. F., Maelah, R., & Ghassan, G. (2019). Management accounting information usefulness and cloud computing qualities among small-to-medium enterprises. International Journal of Management Studies, 26(1) ,1-31.
Ames, D. A., Hines, C. S., & Sankara, J. (2018). Board risk committee: Insurer financial strength ratings and performance. Journal of Accounting Public Policy, 37, 130-145. https://doi.org/10.1016/j.jaccpubpol.2018.02.003
Armeanu, D. S., Georgeta Vintilă, G., & Stefan Cristian Gherghina, S. C. (2018). Empirical Study towards the Drivers of Sustainable Economic Growth in EU-28 Countries. Sustainability, 10(4), 2-22. https://doi.org/10.3390/su10010004
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), 311-332. https://doi.org/10.1177/0148558X0802300303
Berry-Stölzle, T. R., & Xu, J. (2015). Enterprise Risk Management and the Cost of Capital. The Journal of Risk and Insurance, 85(1), 159-201. https://doi.org/10.1111/jori.12152
Boeker, W. (1997). Strategic Change: The Influence of Managerial Characteristics and Organizational Growth. Academy of management journal, 40(1), 152-170. https://doi.org/10.5465/257024
Bontis, N., Chua Chong Keow, W. & Richardson, S. (2000). Intellectual Capital and Business Performance in Malaysian Industries. Journal of Intellectual Capital, 1(1), 85-100. https://doi.org/10.1108/14691930010324188
Baxter, R., Jean, C., Bedard, R. H., & Yezegel, A. (2013). Enterprise Risk Management Program Quality: Determinants, Value Relevance, and the Financial Crisis. Contemporary Accounting Research, 31(4), 1264-1295. https://doi.org/10.1111/j.1911-3846.2012.01194.x
Bromiley, P., Mcshane, M., Nair, A. & Rustambekov, E. (2015). Enterprise Risk Management: Review, Critique, and Research Directions. Long range planning, 48(4), 265-276. https://doi.org/10.1016/j.lrp.2014.07.005
Bryman, A. & Bell, E. (2015). Business Research Methods. Oxford: Oxford University Press.
Callahan, C., & Soileau, J. (2017). Does Enterprise Risk Management Enhance Operating Performance? Advances in Accounting, 37(2), 122-139. https://doi.org/10.1016/j.adiac.2017.01.001
Chin, W. W. (2010). How to Write up and Report Pls Analyses. In V. E. Vinzi, W. W. Chin, J. Henseler, & H. Wang, (Eds.), Handbook of Partial Least Squares:Concepts, Methods and Applications (pp. 655-690). Heidelberg, Dordrecht, London, New York: Springer. https://doi.org/10.1007/978-3-540-32827-8_29
Collier, P. M. (2009). Fundamentals of Risk Management for Accountants and Managers. London: Butterworth-Heinemann. https://doi.org/10.4324/9780080942759
Collier, P. M., Berry, A. J. & Burke, G. T. (2007). Risk and Management Accounting: Best Practice Guidelines for Enterprise-Wide Internal Control Procedures. Oxford: Elsevier.
Colquitt, L. L., Hoyt, R. E. & Lee, R. B. (1999). Integrated Risk Management and the Role of the Risk Manager. Risk Management and Insurance Review, 2(3), 43-61. https://doi.org/10.1111/j.1540-6296.1999.tb00003.x
Corvello, V., Gitto, D., Carlsson, S. & Migliarese, P. (2013). Using Information Technology to Manage Diverse Knowledge Sources in Open Innovation Processes. In J. S. Z. Eriksson Lundstrom, M. Wiberg, S. Hratinski, M. Edenius, P. J. Agerfalk, (Eds.), Managing Open Innovation Technologies. Berlin: Springer. https://doi.org/10.1007/978-3-642-31650-0_12
Committee of Sponsoring Organizations of the Treadway Commission. (COSO) (2004). Enterprise Risk Management - Integrated Framework. New York: COSO.
Daud, W. N. W., Haron, H., & Ibrahim, D. N. (2011). The Role of Quality Board of Directors in Enterprise Risk Management (Erm) Practices: Evidence from Binary Logistic Regression. International Journal of Business and Management, 6(12), 205-207. https://doi.org/10.5539/ijbm.v6n12p205
Dickinson, G. (2001). Enterprise Risk Management: Its Origins and Conceptual Foundation. The Geneva Papers on Risk and Insurance. Issues and Practice, 26(3), 360-366. https://doi.org/10.1111/1468-0440.00121
Elahi, E. (2013). Risk Management: The Next Source of Competitive Advantage. Foresight, 15(2), 117-131. https://doi.org/10.1108/14636681311321121
Farrell, M., & Gallagher, R. (2015). The Valuation Implications of Enterprise Risk Management Maturity. Journal of Risk and Insurance, 82(3), 625-657. https://doi.org/10.1111/jori.12035
Florio, C., & Leoni, G. (2017). Enterprise and Risk Management and firm performance. The British Accounting Review, 49, 56-74. https://doi.org/10.1016/j.bar.2016.08.003
Francis, S., & Richards, T. (2007). Why ERM Matters And How to Accelerate Progress. Risk Management, 10, 28.
Gefen, D., & Straub, D. (2005). A Practical Guide to Factorial Validity Using Pls-Graph: Tutorial and Annotated Example. Communications of the Association for Information systems, 16(1), 5-6. https://doi.org/10.17705/1CAIS.01605
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. https://doi.org/10.1016/j.jaccpubpol.2009.06.006
Gulati, R., & Westphal, J. D. (1999). Cooperative or Controlling? The Effects of Ceo-Board Relations and the Content of Interlocks on the Formation of Joint Ventures. Administrative science quarterly, 44(3), 473-506. https://doi.org/10.2307/2666959
Hair, J. F., Sarstedt, M., Hopkins, L., & G. Kuppelwieser, V. (2014). Partial Least Squares Structural Equation Modeling (Pls-Sem) an Emerging Tool in Business Research. European Business Review, 26(2), 106-121. https://doi.org/10.1108/EBR-10-2013-0128
Henseler, J., Dijkstra, T. K., Sarstedt, M., Ringle, C. M., Diamantopoulos, A., Straub, D. W., Ketchen Jr, D. J., Hair, J. F., Hult, G. T. M., & Calantone, R. J. (2014). Common Beliefs and Reality About Pls: Comments on Rönkkö and Evermann (2013). Organizational Research Methods, 17(2), 182-209. https://doi.org/10.1177/1094428114526928
Henseler, J., Ringle, C. M., & Sinkovics, R. R. (2009). The Use of Partial Least Squares Path Modeling in International Marketing. In R. R. Sinkovics & P. N. Ghari (Eds.), Advances in International Marketing (pp. 277-319). Bingley: Emerald Group Publishing Limited. https://doi.org/10.1108/S1474-7979(2009)0000020014
Hillman, A. J., & Dalziel, T. (2003). Boards of Directors and Firm Performance: Integrating Agency and Resource Dependence Perspectives. Academy of Management Review, 28(3), 383-396. https://doi.org/10.2307/30040728
Hitt, M. A., Biermant, L., Shimizu, K., & Kochhar, R. (2001). Direct and Moderating Effects of Human Capital on Strategy and Performance in Professional Service Firms: A Resource-Based Perspective. Academy of Management Journal, 44(1), 13-28. https://doi.org/10.2307/3069334
Hopkin, P. (2014). Fundamentals of Risk Management: Understanding, Evaluating and Implementing Effective Risk Management. Kogan Page Publishers.
Hoyt, R. E., & Liebenberg, A. P. ( 2011). The Value of Enterprise Risk Management. Journal of Risk and Insurance, 78(4), 795-822. https://doi.org/10.1111/j.1539-6975.2011.01413.x
Ingley, C., & Van Der Walt, N. (2008). Risk Management and Board Effectiveness. International Studies of Management & Organization, 38(3), 43-70. https://doi.org/10.2753/IMO0020-8825380302
Jackson, R. A. (2005). Role Play: Internal Auditors Differ in Their Opinions on Just What Part They Should Play in the Implementation of Their Organization's Enterprise Risk Management. Internal Auditor, 62(2), 44-51.
Jalal-Karim, A. (2013). Leveraging Enterprise Risk Management (Erm) for Boosting Competitive Business Advantages in Bahrain. World Journal of Entrepreneurship, Management and Sustainable Development, 9(1), 65-75. https://doi.org/10.1108/20425961311315728
Kamboj, S., Goyal, P., & Rahman, Z. (2015). A Resource-Based View on Marketing Capability, Operations Capability and Financial Performance: An Empirical Examination of Mediating Role. Procedia-Social and Behavioral Sciences, 189(3), 406-415. https://doi.org/10.1016/j.sbspro.2015.03.201
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. https://doi.org/10.1111/1098-1616.00020
Lam, J. (2014). Enterprise Risk Management: From Incentives to Controls. New Jersey: John Wiley & Sons. https://doi.org/10.1002/9781118836477
Le Meunier-Fitzhugh, K., & Lane, N. (2009). Collaboration between Sales and Marketing, Market Orientation and Business Performance in Business-to-Business Organisations. Journal of Strategic Marketing, 17(3-4), 291-306. https://doi.org/10.1080/09652540903064860
Liebenberg, A. P., & Hoyt, R. E. (2003). Determinants of Enterprise Risk Management: Evidence from the Appointment of Chief Risk Officers. Risk Management and Insurance Review, 6, 37-52. https://doi.org/10.1111/1098-1616.00019
Lonial, S. C. & Carter, R. E. (2015). The Impact of Organizational Orientations on Medium and Small Firm Performance: A Resource‐Based Perspective. Journal of Small Business Management, 53(1), 94-113. https://doi.org/10.1111/jsbm.12054
Lundqvist, S. A. (2014). An Exploratory Study of Enterprise Risk Management Pillars of Erm. Journal of Accounting, Auditing & Finance, 29(3), 393-429. https://doi.org/10.1177/0148558X14535780
Makarova, V. (2014). The Formationof Riskmanagement at the Enterprise. Bulletin of the Pskov State University. Series: Economic and Technical Science, 4, 98-108.
Malik, M. V., Zaman, M., & Bucky, S. (2020). Enterprise and firm performance: Role of the risk committee. Journal of Contemporary Accounting & Economics, 16, 1-22. https://doi.org/10.1016/j.jcae.2019.100178
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.
Mcguirk, H., Lenihan, H., & Hart, M. (2015). Measuring the Impact of Innovative Human Capital on Small Firms' Propensity to Innovate. Research Policy, 44(4), 965-976. https://doi.org/10.1016/j.respol.2014.11.008
Mcnally, J. S. (2013). The 2013 Coso Framework & Sox Compliance: One Approach to an Effective Transition. Strategic Finance, 21(3), 1-8.
Mcshane, M, Nair, A., & Rustambekov, E. (2011). Does Enterprise Risk Management Firm Value? Journal of Accounting, Auditing and Finance, 26(4), 641-618. https://doi.org/10.1177/0148558X11409160
Mikes, A. & Kaplan, R. S. (2015). When One Size Doesn't Fit All: Evolving Directions in the Research and Practice of Enterprise Risk Management. Journal of applied corporate finance, 27(1), 37-40. https://doi.org/10.1111/jacf.12102
Mintzberg, H. (1973). The Nature of Managerial Work. New York: Harper & Row.
Nieves, J., & Quintana, A. (2016). Human Resource Practices and Innovation in the Hotel Industry: The Mediating Role of Human Capital. Tourism and Hospitality Research, 14(67), 35-37.
Nocco, B., & Stulz, R. (2006). Enterprise Risk Management: Theory and Practice. Journal of Applied Corporate Finance, 18, 8-20. https://doi.org/10.1111/j.1745-6622.2006.00106.x
Park, H., Li, Z., Yang, X. O., Chang, S. H., Nurieva, R., Wang, Y.-H., Wang, Y., Hood, L., Zhu, Z., & Tian, Q. (2005). A Distinct Lineage of Cd4 T Cells Regulates Tissue Inflammation by Producing Interleukin 17. Nature immunology, 6(11), 1133-1141 https://doi.org/10.1038/ni1261
Peteraf, M. A., & Bergen, M. E. (2003). Scanning Dynamic Competitive Landscapes: A Market‐Based and Resource‐Based Framework. Strategic Management Journal, 24(10), 1027-1041. https://doi.org/10.1002/smj.325
Pfeffer, J., & C. Lammerding. (1981). Power in Organizations (Ed. 33). Pitman Marshfield, MA.
Ping, T. A., & Muthuveloo, R. (2015). The Impact of Enterprise Risk Management on Firm Performance: Evidence from Malaysia. Asian Social Science, 11(22), 149. https://doi.org/10.5539/ass.v11n22p149
Ping, T. A., Yeang, L. K. & Muthuveloo, R. (2017). The Impact of Enterprise Risk Management, Strategic Agility, and Quality of Internal Audit Function on Firm Performance. International Review of Management and Marketing, 7(1), 3-7.
Prajogo, D. I., & Oke, A. (2016). Human Capital, Service Innovation Advantage, and Business Performance: The Moderating Roles of Dynamic and Competitive Environments. International Journal of Operations & Production Management, 36(9), 974-994. https://doi.org/10.1108/IJOPM-11-2014-0537
Salinah, T. (2016). Factors Influencing the Effectiveness of Enterprise Risk Management (Erm) in Public Listed Companies (Unpublished doctoral thesis). University of Malaya, Malaysia.
Salinah, T., Isa, C. R., & Zainuddin, S. (2014). Review of Enterprise Risk Management (Erm) Literature. In International Conference on Technology and Business Management (pp. 36-48). Dubai.
Sarens, G. (2009). Internal Auditing Research: Where Are We Going? Editorial. International Journal of Auditing, 13(1), 1-7. https://doi.org/10.1111/j.1099-1123.2008.00387.x
Schneider, G. P., Sheikh, A., & Simione, K. A. (2012). Holistic Risk Management: An Expanded Role for Internal Auditors. Academy of Accounting and Financial Studies Journal, 16(1), 25-30.
Simons, T., Pelled, L. H., & Smith, K. A. (1999). Making Use of Difference: Diversity, Debate, and Decision Comprehensiveness in Top Management Teams. Academy of Management Journal, 42(6), 662-673. https://doi.org/10.5465/256987
Snell, S. A., & Dean, J. W. (1992). Integrated Manufacturing and Human Resource Management: A Human Capital Perspective. Academy of management Journal, 35(3), 467-504. https://doi.org/10.2307/256484
Soltanizadeh, S., Abdul Rasid, S. Z., Mottaghi Golshan, N., & Wan Ismail, W. K. (2016). Business Strategy, Enterprise Risk Management and Organizational Performance. Management Research Review, 39(9), 1016-1033. https://doi.org/10.1108/MRR-05-2015-0107
Stokes, M. (2004) Taking full advantage of enterprise-wide risk management. The Treasurer (May ed). London: Association of Corporate Treasurers.
Subramaniam, M., & Youndt, M. A. (2005). The Influence of Intellectual Capital on the Types of Innovative Capabilities. Academy of Management Journal, 48(3), 450-463. https://doi.org/10.5465/amj.2005.17407911
Subramaniam, N., Collier, P., Phang, M., & Burke, G. (2011). The Effects of Perceived Business Uncertainty, External Consultants and Risk Management on Organisational Outcomes. Journal of Accounting & Organizational Change, 7(2), 132-157. https://doi.org/10.1108/18325911111139671
Viscelli, T. R., Beasley, M. S., & Hermanson, D. R. (2016). Research Insights About Risk Governance. SAGE Open, 6(4), 1-17. https://doi.org/10.1177/2158244016680230
Wade, M., & Hulland, J. (2004). Review: The Resource-Based View and Information Systems Research: Review, Extension, and Suggestions for Future Research. MIS quarterly, 28(1), 107-142. https://doi.org/10.2307/25148626
Wong, Y. C., & Bajuri, N. H. (2013). Corporate Governance: Board Structure, Information Technology and Csr Reporting. Sains Humanika, 64(2), 20-26. https://doi.org/10.11113/jt.v64.2246
Yazid, A. S., Hussin, M. R., & Daud, W. N. W. (2011). An Examination of Enterprise Risk Management (Erm) Practices among the Government-Linked Companies (Glcs) in Malaysia. International Business Research, 4(4), 94-98. https://doi.org/10.5539/ibr.v4n4p94
Copyright (c) 2022 Noradiva Hamzah
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
Copyright Transfer Statement for Journal
1) In signing this statement, the author(s) grant UNIMAS Publisher an exclusive license to publish their original research papers. The author(s) also grant UNIMAS Publisher permission to reproduce, recreate, translate, extract or summarize, and to distribute and display in any forms, formats, and media. The author(s) can reuse their papers in their future printed work without first requiring permission from UNIMAS Publisher, provided that the author(s) acknowledge and reference publication in the Journal.
2) For open access articles, the author(s) agree that their articles published under UNIMAS Publisher are distributed under the terms of the CC-BY-NC-SA (Creative Commons Attribution-Non Commercial-Share Alike 4.0 International License) which permits unrestricted use, distribution, and reproduction in any medium, for non-commercial purposes, provided the original work of the author(s) is properly cited.
3) For subscription articles, the author(s) agree that UNIMAS Publisher holds copyright, or an exclusive license to publish. Readers or users may view, download, print, and copy the content, for academic purposes, subject to the following conditions of use: (a) any reuse of materials is subject to permission from UNIMAS Publisher; (b) archived materials may only be used for academic research; (c) archived materials may not be used for commercial purposes, which include but not limited to monetary compensation by means of sale, resale, license, transfer of copyright, loan, etc.; and (d) archived materials may not be re-published in any part, either in print or online.
4) The author(s) is/are responsible to ensure his or her or their submitted work is original and does not infringe any existing copyright, trademark, patent, statutory right, or propriety right of others. Corresponding author(s) has (have) obtained permission from all co-authors prior to submission to the journal. Upon submission of the manuscript, the author(s) agree that no similar work has been or will be submitted or published elsewhere in any language. If submitted manuscript includes materials from others, the authors have obtained the permission from the copyright owners.
5) In signing this statement, the author(s) declare(s) that the researches in which they have conducted are in compliance with the current laws of the respective country and UNIMAS Journal Publication Ethics Policy. Any experimentation or research involving human or the use of animal samples must obtain approval from Human or Animal Ethics Committee in their respective institutions. The author(s) agree and understand that UNIMAS Publisher is not responsible for any compensational claims or failure caused by the author(s) in fulfilling the above-mentioned requirements. The author(s) must accept the responsibility for releasing their materials upon request by Chief Editor or UNIMAS Publisher.
6) The author(s) should have participated sufficiently in the work and ensured the appropriateness of the content of the article. The author(s) should also agree that he or she has no commercial attachments (e.g. patent or license arrangement, equity interest, consultancies, etc.) that might pose any conflict of interest with the submitted manuscript. The author(s) also agree to make any relevant materials and data available upon request by the editor or UNIMAS Publisher.
