Enterprise Risk Management (ERM) and Firm’s Performance: A Study of Listed Manufacturing Firms in Nigeria

Abstract

Increased volatility in the business world has exposed the inadequacy of traditional approaches to risk management. This has led to an integrated approach to measuring and managing risks known as enterprise risk management (ERM). At the same time, past studies on ERM disclosures have examined it within the context of book-based approach, which has not given the right and accurate information. However, this paper examined the significance of enterprise risk management and listed manufacturing firms' financial performance in Nigeria using both the book-based approach and the market-based approach. Relevant ERM theories in relation to financial performance such as Agency Theory, Stakeholders Theory, and Enterprise Risk Management Theory were examined. A panel data analysis was employed on time series and cross-sectional data of thirty listed manufacturing firms in Nigeria from 2010 to 2018. The random effect of the Hausman test was found to be more appropriate and hence adopted in interpreting the results of the analysis. The results confirm the a priori expectations that profitability ratio, liquidity ratio, market-based ration to risk board committee, the board size, firm size, and directors’ ownership all have varied impact on the firm’s profitability with varied statistical significance levels.