Determinants and Challenges of Enterprise Risk Management and Its Effect on Performance of Enterprises: An Application of Mediation Analysis

Abstract

In order to compare the performance of businesses located in industrial parks with businesses located outside of industrial parks, this study proposed the Enterprise Risk Management (ERM) index and used descriptive and partial least square structural equation model (PLS-SEM) analysis to examine the factors that influence, present difficulties for, and have an effect of enterprise risk management. The results of the analysis found that the majority of enterprises have an evolving ERM maturity level. Enterprises found in industrial parks have a higher level of complete ERM maturity than enterprises found outside industrial parks. Among the selected five determinants of ERM, for enterprises found in industrial parks, international diversification is the only determinant, whereas ownership and financial leverage are the determinants for enterprises found outside industrial parks. The findings of this research further show that ERM has a positive and significant effect on the performance of enterprises located in industrial parks but a negative and significant effect on the performance of enterprises located outside of industrial parks. This research also shows that availability and collection of historical data, difficulty in translating risks into figures, lack of risk assessment tools and technologies, lack of awareness of ERM’s advantages, and organizational cultures that view risk as a challenge for enterprises can be found both inside and outside industrial parks. This study will provide necessary inputs for policymakers, the Industrial Park Development Corporation, and investors by providing insight into ERM and also serve as a base for future research areas related to ERM.