Enterprise Risk Management and Firm Value: The Role of Board Monitoring

Muhammad Faisal(1*), Auliffi Ermian Challen(2),

(1) Accounting Department, Faculty of Economics and Business, Universitas YARSI, Center Jakarta, 10510
(2) Accounting Department, Faculty of Economics and Business, Universitas YARSI, Center Jakarta, 10510
(*) Corresponding Author


This study aims to obtain empirical evidence related to the influence of Enterprise Risk Management on firm value and the role of monitoring by the Board of Directors and the Board of Commissioners in moderating the effect of ERM on firm value. The sample used is manufacturing companies listed on the Indonesia Stock Exchange in 2014-2017. The test results show that ERM is proven to be able to suppress the uncertainty that arises from the company's activities and the conflicts that occur, which affect the formation of firm value. Furthermore, the excessive number of directors is proven to harm company performance because it is prone to conflicts of interest and the many parties who have the opportunity to become free riders in their responsibilities as directors. So, the board of directors who have an effective role is only carried out by a few people. On the other hand, there are many commissioners in a company that proves to be not very influential in moderating the influence of ERM on the company's value. This research is expected to contribute to the accounting literature in filling the existing gaps, especially regarding Enterprise Risk Management.


Enterprise Risk Management, Firm Value, Board Monitoring.

Full Text:



Ai Ping, T., & Muthuveloo, R. (2015). The impact of enterprise risk management on firm performance: Evidence from Malaysia. Asian Social Science. https://doi.org/10.5539/ass.v11n22p149

Amarjit, G., & Neil, M. (2011). Factors that Influence Financial Leverage of Canadian Firms. Journal of Applied Finance and Banking, 1(2), 19–37.

Baxter, R., Bedard, J. C., Hoitash, R., & Yezegel, A. (2013). Enterprise risk management program quality: Determinants, value relevance, and the financial crisis. Contemporary Accounting Research. https://doi.org/10.1111/j.1911-3846.2012.01194.x

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 and Finance. https://doi.org/10.1177/0148558X0802300303

Becker-Blease, J. R., Kaen, F. R., Etebari, A., & Baumann, H. (2010). Employees, firm size and profitability in U.S. manufacturing industries. Investment Management and Financial Innovations. https://doi.org/10.2139/ssrn.382402

Bertinetti, G. S., Cavezzali, E., & Gardenal, G. (2013). The Effect of the Enterprise Risk Management Implementation on the Firm Value of European Companies. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2326195

Brigham, E. F., & Houston, J. F. (2012). Fundamentals of financial management. Cengage Learning.

Callahan, C., & Soileau, J. (2017). Does Enterprise risk management enhance operating performance? Advances in Accounting. https://doi.org/10.1016/j.adiac.2017.01.001

Carey, A. (2001). Effective risk management in financial institutions: the turnbull approach. Balance Sheet. https://doi.org/10.1108/09657960110696014

Chakravarthy, B. S. (1986). Measuring strategic performance. Strategic Management Journal. https://doi.org/10.1002/smj.4250070505

Ducassy, I., & Montandrau, S. (2015). Corporate social performance, ownership structure, and corporate governance in France. Research in International Business and Finance. https://doi.org/10.1016/j.ribaf.2015.02.002

Faleye, O. (2007). Classified boards, firm value, and managerial entrenchment. Journal of Financial Economics. https://doi.org/10.1016/j.jfineco.2006.01.005

Farrell, M., & Gallagher, R. (2015). The Valuation Implications of Enterprise Risk Management Maturity. Journal of Risk and Insurance. https://doi.org/10.1111/jori.12035

Florio, C., & Leoni, G. (2017). Enterprise risk management and firm performance: The Italian case. British Accounting Review. https://doi.org/10.1016/j.bar.2016.08.003

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. https://doi.org/10.1016/j.jaccpubpol.2009.06.006

Hoyt, R. E., & Liebenberg, A. P. (2011). The Value of Enterprise Risk Management. Journal of Risk and Insurance. https://doi.org/10.1111/j.1539-6975.2011.01413.x

Indonesia, C. (2017). Survey Nasional Manajemen Risiko 2017. CRMS Indonesia.

Ingley, C., & van der Walt, N. (2008). Risk Management and Board Effectiveness. International Studies of Management & Organization. https://doi.org/10.2753/imo0020-8825380302

Jensen, M. C. (1993). The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems. The Journal of Finance. https://doi.org/10.2307/2329018

Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics. https://doi.org/10.1016/0304-405X(76)90026-X

Kajüter, P., & Kulmala, H. I. (2005). Open-book accounting in networks. Potential achievement and reasons for failures. Management Accounting Research. https://doi.org/10.1016/j.mar.2005.01.003

Kassinis, G., & Vafeas, N. (2002). Corporate boards and outside stakeholders as determinants of environmental litigation. Strategic Management Journal. https://doi.org/10.1002/smj.230

Kiel, G. C., & Nicholson, G. J. (2002). Boards that work: A new guide for directors. McGraw Hill.

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 Insurance Review. https://doi.org/10.1111/1098-1616.00020

Kuzey, C., & Uyar, A. (2017). Determinants of sustainability reporting and its impact on firm value: Evidence from the emerging market of Turkey. Journal of Cleaner Production. https://doi.org/10.1016/j.jclepro.2016.12.153

Lipton, M., & Lorsch, J. W. (1992). A modest proposal for improved corporate governance: Business source. Business Lawyer. https://doi.org/10.1525/sp.2007.54.1.23.

Liu, X., & Zhang, C. (2017). Corporate governance, social responsibility information disclosure, and enterprise value in China. Journal of Cleaner Production. https://doi.org/10.1016/j.jclepro.2016.09.102

Miller, D., & Sardais, C. (2011). Angel agents: Agency theory reconsidered. Academy of Management Perspectives. https://doi.org/10.5465/AMP.2011.61020798

Nekhili, M., Nagati, H., Chtioui, T., & Rebolledo, C. (2017). Corporate social responsibility disclosure and market value: Family versus nonfamily firms. Journal of Business Research. https://doi.org/10.1016/j.jbusres.2017.04.001

Nocco, B. W., & Stulz, R. M. (2006). Enterprise Risk Management: Theory and Practice. Journal of Applied Corporate Finance. https://doi.org/10.1111/j.1745-6622.2006.00106.x

Obradovich, J., & Gill, A. (2012). The Impact of Corporate Governance and Financial Leverage on the Value of American Firms. International Research Journal of Finance and Economics.

Pagach, D. P., & Warr, R. S. (2010). The effects of enterprise risk management on firm performance. Available at SSRN 1155218.

Pagach, D., & Warr, R. (2011). The Characteristics of Firms That Hire Chief Risk Officers. Journal of Risk and Insurance. https://doi.org/10.1111/j.1539-6975.2010.01378.x

Pérez-González, F., & Yun, H. (2013). Risk management and firm value: Evidence from weather derivatives. Journal of Finance. https://doi.org/10.1111/jofi.12061

Raber, R. W. (2003). The Role of Good Corporate Governance in Overseeing Risk. Corporate Governance Advisor.

Sayilir, Ö., & Farhan, M. (2016). Enterprise Risk Management and Its Effect on Firm Value in Turkey. Journal of Management Research. https://doi.org/10.5296/jmr.v9i1.10124

Schroeck, G. (2002). Risk management and value creation in financial institutions (Vol. 155). John Wiley & Sons.

Sobel, P. J., & Reding, K. F. (2004). Aligning Corporate Governance with Enterprise Risk Management. Management Accounting Quarterly.

Uzzi, B. (1999). Embeddedness in the making of financial capital: How social relations and networks benefit firms seeking financing. American Sociological Review. https://doi.org/10.2307/2657252

Uzzi, B., & Gillespie, J. J. (2002). Knowledge spillover in corporate financing networks: Embeddedness and the firm’s debt performance. Strategic Management Journal. https://doi.org/10.1002/smj.241

Verbrugge, J., Owens, W., & Megginson, W. (1999). State ownership and the financial performance of privatized banks: An empirical analysis. In conference Proceedings of a Policy research Workshop held at the World Bank (pp. 15–16). Citeseer.

Wang, Z., & Sarkis, J. (2017). Corporate social responsibility governance, outcomes, and financial performance. Journal of Cleaner Production. https://doi.org/10.1016/j.jclepro.2017.06.142

Williamson, O. E. (1991). Strategizing, economizing, and economic organization. Strategic Management Journal. https://doi.org/10.1002/smj.4250121007.

DOI: http://dx.doi.org/10.21532/apfjournal.v6i1.204

Article Metrics

Abstract view : 12300 times
PDF - 355 times


  • There are currently no refbacks.

Creative Commons License

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).