The Effect of Enterprise Risk Management on Firm Value: Evidence from Malaysian Technology Firms

Mohd Hafizuddin Syah Bangaan Abdullah, Hawati Janor, Mohamad Abdul Hamid, Puan Yatim

Abstract


ABSTRACT

This paper aims to examine the relationship between ERM and firm value in Malaysia. In the past literature, ERM had been argued to increase firm value but empirical evidence shows mixed and inconclusive results. Using sample from 2004 to 2012, this paper furthers the analysis on the relationship between ERM and firm performance among technology firms in Malaysia. Indeed, technology industry is the fastest growing and a volatile industry, which requires continuous innovation. These make technology firms more prone to risk exposure. In analyzing this issue, dynamic panel data is employed to allow cross-sectional and time series analysis. Our results show that the implementation of ERM in the previous year has strong negative relationship with firm value at 1 percent significance level. It supports the argument that the effect of ERM is not immediately realized as well as entails high implementation cost. The findings provide useful input and insight in formulating new policy in relation to corporate governance, particularly ERM in Malaysia.

Keywords: Enterprise risk management; ERM; risk management; firm value; firm performance

ABSTRAK

Kajian ini bertujuan untuk melihat hubungan di antara ERM dan nilai firma di Malaysia. Dalam kajian-kajian lepas, ERM dikatakan mampu untuk meningkatkan nilai firma tetapi bukti empirikal menunjukkan dapatan yang bercampur-campur dan berbeza-beza. Dengan menggunakan sampel dari tahun 2004-2012, kajian ini menganalisis hubungan di antara ERM and nilai firma di kalangan firma-firma berasaskan teknologi di Malaysia. Ini adalah kerana sektor teknologi merupakan industri yang berkembang pesat dan mempunyai kemeruapan yang tinggi, disamping memerlukan inovasi yang berterusan. Ini menyebabkan firma-firma teknologi lebih terdedah kepada risiko. Untuk menganalisis dan mengupas isu ini, data panel dinamik digunakan untuk membolehkan analisis keratan rentas dan siri masa dibuat. Hasil daripada kajian ini mendapati bahawa perlaksanaan ERM pada tahun sebelumnya mempunyai hubungan negatif dengan nilai firma pada aras keertian 1 peratus dan seterusya menyokong pendapat yang mengatakan bahawa kesan perlaksanaan ERM tidak akan dapat dilihat serta merta dan juga perlaksanaan ERM memerlukan kos yang tinggi. Kajian ini juga memberikan input dan pandangan yang berguna dalam memformulasi polisi berkaitan dengan urus tadbir, terutama perlaksanaan ERM di Malaysia.

Kata kunci: Pengurusan risiko enterprise; ERM; pengurusan risiko; nilai firma; prestasi firma


Keywords


Enterprise risk management, ERM, risk management, firm value, firm performance

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