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The effect of enterprise risk management on financial performance and firm value: the role of environmental, social and governance performance

Chairani Chairani (Department of Accounting, Faculty of Economics and Business, Universitas Indonesia, Depok, Indonesia)
Sylvia Veronica Siregar (Department of Accounting, Faculty of Economics and Business, Universitas Indonesia, Depok, Indonesia)

Meditari Accountancy Research

ISSN: 2049-372X

Article publication date: 3 June 2021

Issue publication date: 23 June 2021

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Abstract

Purpose

This study aims to examine the effect of enterprise risk management (ERM) on financial performance and firm value, as well as the moderating role of environmental, social and governance (ESG) performance.

Design/methodology/approach

The samples in this study are listed companies in the ASEAN 5 (Indonesia, Malaysia, Philippines, Singapore and Thailand) during the years 2014–2018, with total observations of 680 firm-years. Fixed effect panel data regressions were used to test the hypotheses. The data was collected from Financial Report, Annual Reports and Thomson Reuters.

Findings

The results show that ERM has a positive significant effect on financial performance and firm value. This paper also finds that ESG has a significant moderating role in increasing the effect of ERM on firm value. Further, this paper divides the samples into sensitive and non-sensitive industries and find a significant moderating role of ESG performance on firm performance for sensitive industries.

Originality/value

Extant studies have not empirically examined the moderating role of ESG on the effect of ERM on firm performance and firm value. The findings have important implications in suggesting that firms need to analyze various threats and opportunities related to and ESG risks in achieving competitive advantage.

Keywords

Acknowledgements

The first author would like to express gratitude to the Ministry of Education and Culture of the Republic of Indonesia for awarding the “Flagship Scholarships.” Both authors also would like to thank Universitas Indonesia for providing PITMA research grant.

Citation

Chairani, C. and Siregar, S.V. (2021), "The effect of enterprise risk management on financial performance and firm value: the role of environmental, social and governance performance", Meditari Accountancy Research, Vol. 29 No. 3, pp. 647-670. https://doi.org/10.1108/MEDAR-09-2019-0549

Publisher

:

Emerald Publishing Limited

Copyright © 2021, Emerald Publishing Limited

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