Determinants of ERM quality and its impact on company value

    Nurul Hidayah   Affiliation
    ; Zubir Azhar Affiliation
    ; Erna Setiany Affiliation
    ; Wiwik Utami Affiliation
    ; Deden Tarmidi Affiliation


Company value results from how well a company has managed its resources to achieve business benefits. However, there are always risks associated with conducting business, and effective risk management (ERM) can help reduce those risks so that they stay in the way of the entity’s performance goals. This study examines the factors that affect ERM quality, such as company size, auditor caliber, concentrated ownership, and director oversight, and how this affect business success. Purposive sampling produced a sample of 552-panel data used in this study’s research of manufacturing firms in Indonesia and Malaysia. With the aid of STATA software, this study discovered a favorable relationship between auditor quality and ERM and also impact firm size, auditor quality, concentrated ownership, and ERM on company value. The expansion test revealed that while the quality of auditors in Malaysian companies had a positive effect on firm value while those in Indonesia did not, and vice versa, the quality of auditors in Indonesian companies had a stronger positive effect on ERM quality than the quality of auditors in Malaysian companies. In contrast to businesses in Malaysia, monitoring of directors has a beneficial impact on a company’s worth in Indonesia.

Keyword : company size, auditor quality, concentrated ownership, board of directors monitoring, ERM quality, firm value

How to Cite
Hidayah, N., Azhar, Z., Setiany, E., Utami, W., & Tarmidi, D. (2024). Determinants of ERM quality and its impact on company value. Business: Theory and Practice, 25(1), 11–23.
Published in Issue
Jan 17, 2024
Abstract Views
PDF Downloads
Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.


Alsmairat, Y., Sallha, Y. W., Salleh, M. D. M., & Basnan, N. (2018). International diversification, audit quality and firm value of Jordanian public listed firm. Academy of Accounting and Financial Studies Journal, 22 (Special Issue), 1–7.

Aobdia, D., Lin, C.-J., & Petacchi, R. (2015). Capital market consequences of audit partner quality. The Accounting Review, 90(6), 2143–2176.

Asmoro, A. S. K., Majidah, & Mahardika, D. P. K. (2016). Analisis Determinan Pengungapan Enterprise Risk Management (Studi pada Perusahaan yang terdaftar dalam Indeks IDX30 di BEI periode 2012–2014). E-Proceeding of Management, 3(3), 3409–3416.

Asthana, S. (2014). Abnormal audit delays, earnings quality and firm value in the USA. Journal of Financial Reporting and Accounting, 12(1).

Asante-Darko, D., Adu Bonsu, B., Famiyeh, S., Kwarteng, A., & Goka, Y. (2018). Governance structures, cash holdings and firm value on the Ghana Stock Exchange. Corporate Governance, 18(4), 671–685.

Beasley, M., Clune, R., & Hermanson, D. (2005). Enterprise risk management: An empirical analysis of factors associated with the extent of implementation. Journal of Accounting and Public Policy, 24(6), 521–531.

Beasley, M. S., 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, 23(3), 311–332.

Beretta, S., & Bozzolan, S. (2004). A framework for the analysis of firm risk communication. The International Journal of Accounting, 39(3), 265–288.

Berek, Y. M. F., Kase, P., & Rozari, P. E. D. (2022). Implementation of activity program planning and budget accountability in efforts to increase the performance of state universities (case study at Kupang State Agricultural Polytechnic). Journal of Governance, Taxation and Auditing, 1(2), 97–109.

Berle, A., & Means, G. (1932). The modern corporation and private property. Macmillan.

Bunget, O., Dumitrescu, A., & Dreve, R.-M. (2010). Risk management’s importance and role in audit. The Annals of the University of Oradea Economic Sciences, 1(1), 484–489.

Brustbauer, J. (2014). Enterprise risk management in SMEs: Towards a structural model. International Small Business Journal, 34(1), 70–85.

Casualty Actuarial Society – Enterprise Risk Management Committee. (2003). Overview of enterprise risk management. Casualty Actuarial Society.

Carter, D. A., D’Souza, F., Simkins, B. J., & Simpson, W. G. (2010). The gender and ethnic diversity of US boards and board committees and firm financial performance. Corporate Governance: An International Review, 18(5), 396–414.

CRMS. (2017). Survey Nasional Manajemen Risiko 2017. In Center for Risk Management Studies.

Deloitte. (2010). Risk intelligence in the energy & resources industry enterprise risk management benchmark survey.

Desender, K. A., & Lafuente, E. (2011). The influence of board composition, audit fees and ownership concentration on enterprise risk management. SSRN Electronic Journal, (March 2016).

Donaldson, T., & Preston, E. (1995). The stakeholder theory of the corporation: Concepts, evidence and implications. The Academy of Management Review, 20(1), 65–91.

Ekananda, M. (2015). Ekonomi Internasional. Erlangga.

Faleye, O., Hoitash, R., & Hoitash, U. (2011). The costs of intense board monitoring. Journal of Financial Economics, 101(1), 160–181.

Fama, E., & Jensen, M. (1983). Separation of ownership and control. Journal of Law and Economics, 26(2), 301–325.

Ghazieh, L., & Chebana, N. (2021). The effectiveness of risk management system and firm performance in the European context. Journal of Economics, Finance and Administrative Science, 26(52).

Ghozali, I. (2001). Aplikasi Analisis Multivariate dengan Program SPSS. BP UNDIP.

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, 28(4), 301–327.

Grega, M., & Nečas, P. (2022). Implementation of effective solutions to the crisis tasks and its regional management. Insights into Regional Development, 4(4), 21–35.

Gujarati, D. N. (2012). Basic econometrics. McGraw-Hill Companies.

Handayani, B. D., & Yanto, H. (2013). Determinan Pengungkapan Enterprise Risk Management Pada Perusahaan Manufaktur Di Indonesia. Accounting Analysis Journal, 2(3), Article 335.

Hillson, D. (2009). Managing risk in project. Routledge.

Hirdinis, M. (2019). Capital structure and firm size on firm value moderated by profitability. International Journal of Economics and Business Administration, VII(1), 174–191.

Holmstron, B. (2005). Pay without performance and the managerial power hypothesis: A comment. Journal of Corporation Law, 30(4), 703–713.

Hoyt, R. E., & Liebenberg, A. P. (2010). The value of enterprise risk management. The Journal of Risk and Insurance, 78(4).

Huang, S., Ding, D., & Chen, Z. (2014). Entrepreneurial leadership and performance in Chinese new ventures: A moderated mediation model of exploratory innovation, exploitative innovation and environmental dynamism. Creativity and Innovation Management, 23(4), 453–471.

Husna, A., & Satria, I. (2019). Effects of return on asset, debt to asset ratio, current ratio, firm size, and dividend payout ratio on firm value. International Journal of Economics and Financial Issues, 9(5), 50–54.

Ibrahim, S., Diibuzie, G., & Abubakari, M. (2017). The impact of internal control systems on financial performance: The case of health institutions in upper West Region of Ghana. International Journal of Academic Research in Business and Social Sciences, 7(4), 684–696.

Ishak, S., & Nor, M. N. M. (2017). The relationship between a board of directors and risk management committee in Malaysia. International Journal of Economic Research, 14(10), 77–87.

International Standard on Auditing. (2013). ISA 610 (Revised 2013), Using the Work of Internal Auditors and Related Conforming Amendments. In International Auditing and Assurance Standards Board (Vol. 610, Issue March).

Jensen, M. C. (1986). Agency costs of free cash-flow, corporate finance, and takeovers. American Economic Review, 76(2), 323–329.

Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.

Jones, M., Melis, A., Gaia, S., & Aresu, S. (2018). Does graphical reporting improve risk disclosure? Evidence from European banks. Journal of Applied Accounting Research, 19(1), 161–180.

Jones, T. M., & Wicks, A. C. (1999). Convergent stakeholder theory. Academy of Management Review, 24(2), 206–221.

Leon, F. M., & Nugraha, R. K. (2020). Enterprise risk management and corporate governance in Indonesia banking industry. International Journal of Scientific & Technology Research, 9(03).

Linsley, P. M., & Shrives, P. J. (2005). Transparency and the disclosure of risk information in the banking sector. Journal of Financial Regulation and Compliance, 13(3), 205–214.

Margono, F. P., & Gantino, R. (2021). The influence of firm size, leverage, profitability, and devidend policy on firm value of companies in Indonesia stock exchange. Copernican Journal of Finance & Accounting, 10(2), 45–61.

Marhaeni, T., & Yanto, H. (2015). Determinan Pengungkapan Enterprise Risk Management (ERM) Pada Perusahaan Manufaktur. Accounting Analysis Journal, 4(4), 1–16.

Maulani, H. F., & Rahayu, S. (2015). Pengaruh Komposisi Dewan Komisaris Independen, Ukuran Enterprise Risk Management (Studi Empiris Pada Perusahaan Sektor Perbankan Yang Terdaftar Di Bursa Efek Indonesia Dan Bursa Malaysia Tahun 2009–2013). The Influence of Composition of Independent Boar, 2(1), 349–356.

Meizaroh, & Jurica, L. (2011). Pengaruh Corporate Governance dan Konsentrasi Kepemilikan pada Pengungkapan Enterprise Risk Management. In Simposium Nasional Akuntansi XIV. Banda Aceh.

Mayer, N., Aubert, J., Grandry, E., Feltus, C., Goettelmann, E., & Wieringa, R. (2019). An integrated conceptual model for information system security risk management supported by enterprise architecture management. Software and Systems Modeling, 18(3), 2285–2312.

Malik, M., Shafie, R., Ku Ismail, K. nor I., & Bajary, A. R. (2023). Do ownership structures affect the establishment of a risk management committee? Evidence from an emerging market. Cogent Business and Management, 10(2).

Merchant, K., & Van der Stede, W. A. (2011). Management control systems: Performance measurement, evaluation and incentives. Financial Times Press.

Mohd-Sanusi, Z., Motjaba-Nia, S., Roosle, N. A., Sari, R. N., & Harjitok, A. (2017). Effects of corporate governance structures on enterprise risk management practices in Malaysia. International Journal of Economics and Financial Issues, 7(1), 6–13.

Meulbroek, L. (2002). Guide to integrated risk management. Journal of Applied Corporate Finance, 14(4), 56–70.

Nocco, B. W., & Stulz, R. M. (2006). Enterprise risk management: Theory and practice. Journal of Applied Corporate Finance, 18(4), 8–20.

O’Sullivan, P. B., Phyty, G. D., Twomey, L. T., & Allison, G. T. (1997). Evaluation of specific stabilizing exercise in the treatment of chronic low back pain with radiologic diagnosis of spondylolysis or spondylolisthesis. Spine, 22(24), 2959–2967.

Owens, W., & Megginson, W. (2000). State ownership and the financial performance of privatized banks: An empirical analysis. ResearchGate.

Paino, H., Razali, F. M., & Jabar, F. A. (2015). The influence of external auditor’s working style, communication barriers and enterprise risk management toward reliance on internal auditor’s work. Procedia Economics and Finance, 28(2015), 151–155.

Pérez-González, F., & Yun, H. (2013). Risk management and firm value: Evidence from weather derivatives. The Journal of Finance, 68(5), 2143–2176.

Ping, T. A., & Muthuveloo, R. (2015). The impact of enterprise risk management on firm performance: Evidence from Malaysia. Asian Social Science, 11(22), 149–159.

Prinsloo, S., Walker, C., Botha, L., Bruwer, J.-P., & Smit, Y. (2015). The influence of combined assurance initiatives on the efficiency of risk management in retail small and very small enterprises in Bellville, South Africa. Expert Journal of Business and Management, 3(2), 63–81.

Salehi, M., Zimon, G., Arianpoor, A., & Gholezoo, F. E. (2022). The impact of investment efficiency on firm value and moderating role of institutional ownership and board independence. Journal of Risk and Financial Management, 15(4).

Securities Commission. (2007). Malaysian code on corporate governance 2007. In Securities Commission Malaysia (Issue Revised).

Securities Commission. (2012). Malaysian Code on Corporate Governance. In Securities Commission Malaysia.

Shipanga, U., Le Roux, S., & Dubihlela, J. (2022). Risk factors and the sustainability of small and medium manufacturing enterprises in South Africa. Insights into Regional Development, 4(4), 126–139.

Shivaani, M. V., & Agarwal, N. (2020). Does the competitive position of a firm affect the quality of risk disclosure? Pacific-Basin Finance Journal, 61, Article 101317S.

Sukma, A., & Hidayah, N. (2022). The effect of government accounting standards, internal control systems, and audit findings on financial report quality with human resources competency as a moderating variable. Journal of Governance, Taxation and Auditing, 1(2), 309–322.

Saputra, K. A. K., Subroto, B., Rahman, A. F., & Saraswati, E. (2023). Mediation role of environmental management accounting on the effect of green competitive advantage on sustainable performance. Journal of Sustainability Science and Management, 18(2), 103–115.

Standard & Poor’s. (2005). Enterprise risk management function in financial institutions: Rating criteria and best practices. In Standard & Poor’s. The McGraw-Hill Companies.

Tarmidi, D., & Murwaningsari, E. (2019). The influence of earnings management and tax planning on firm value with audit quality as moderating variable. Research Journal of Finance and Accounting, 10(4), 49–58.

Tarmidi, D., Fitria, G. N., & Ahmad, Z. (2019). Financial performance and audit quality: Comparative study of investor reaction. Scholars Bulletin, 05(12), 828–833.

Tarmidi, D., Murwaningsari, E., & Ahnan, Z. M. (2021). Earnings quality and audit quality: Analysis of investor reaction. Humanities and Social Sciences Letters, 9(3), 250–259.

The Committee of Sponsoring Organizations. (2004). Enterprise risk management: Integrated framework: Executive summary, framework, September 2004. In Association sections, divisions, boards, teams (Vol. 2, Issue September). COSO.

Vintilă, G., & Gherghina, Ş. C. (2014). The impact of ownership concentration on firm value. Empirical study of the Bucharest stock exchange listed companies. Procedia Economics and Finance, 15(14), 271–279.

Wijaya, A. L. (2020). The effect of audit quality on firm value: A case in Indonesian manufacturing firm. Journal of Accounting, Finance and Auditing Studies, 6/1(2020), 1–15.

Yermack, D. (1996). Higher market valuation of companies with a small board of directors. Journal of Financial Economics, 40(2), 185–211.

Zulfikar, R. (2018). Estimation model and selection method of panel data regression: An overview of common effect, fixed effect, and random effect model. JEMA: Jurnal Ilmiah Bidang Akuntansi, June 2018, 1–10.