Enterprise risk management and organizational performance: the empirical study of listed companies in Thailand

Abstract

Enterprise Risk Management (ERM) nowadays is a tool for preventive loss for listed-companies due to the volatility of the external environment. Moreover, apart from being a preventive tool, ERM is more important and posits as a compulsory system for alignment to a regulatory base for listed-companies driven from the issues of a lack of corporate governance (CG), historically, from well-known organizations: World-com, Enron, Volkswagen and so on. Even though, ERM is a vital tool for preventing organizational loss as well as for the alignment of listed-companies with the regulator, ERM was not perceived as a top-down strategic tool for organizations. In Thai-listed companies, ERM is at a low maturity level. Leaders have less knowledge about it and there is a low level of cooperation, although the study of the strategic benefits on ERM has been initially conducted (Gates, Louis, & Walker 2012: 28-38). From this it is important to incline the ERM maturity in Thai listed companies, and the prime objective in this research was to challenge the previous studies with the question, “could it be possible that ERM can posit as a strategic tool for enhancing listed companies’ performance (financial, shareholder and managerial performance)?” Secondly, if ERM has its benefits, both top-down and bottom-line, in general, what are the determinants across industries? The unit of analysis in this research was the organizational level. The population approximately accounted for 701 Thailand-listed companies across eight industries. The research design adopted follow-up qualitative extensions to core quantitative research through an empirical survey. For the quantitative methods, with three concepts, five latent variables, 15 observed variables and 50 measurement items, multivariate analysis through structural equation modelling (SEM) was constructed; while, in the qualitative part, interviews with nine ERM experts were undertaken to illustrate and explore the research results. After conducting SEM to confirm previous theories, it displayed that the data fitted well with the theories. Based on the first objective, the empirical data showed that after embedding an ERM system, organizations performed significantly better, especially in managerial performance -non-financial performance-. Comparing non-financial and financial indicators, successfully implementing ERM could significantly improve organizational non-financial indicators. The convergence between quantitative and qualitative methods illustrated that ERM is a strategic tool for deducing organizations with good decision making. Furthermore, ERM supplies early warning system information to the organization to adapt themselves to new business arenas more quickly.