ENTERPRISE RISK MANAGEMENT AND FIRM FINANCIAL PERFORMANCE: AN EMPIRICAL EVIDENCE OF PAKISTAN

Abstract

This study aims to examine the role of Enterprise risk management (ERM) with firm financial performance. For this motive, data is collected from non-financial firms of Pakistan from the period of 2010 to 2017. To test the proposed hypothesis, panel regression with the fixed effect is applied to confirm the relationship between ERM and firm financial performance. The analysis outcomes depict that those firms with one integrated section for risk control resulted in mitigating the risk efficiently, which eventually enhanced the firm's financial performance. In contrast, those firms that adopted the silo approach mean that not having a consolidated system of managing risk reveals a negative relation with the firm's performance. Additionally, enterprise risk management decreases costs compared to firms whose risks are managed by the individual department. Finally, the findings advised management that implementing the ERM program resulted in resolving the agency conflicts.