Enterprise Risk Management Framework and The Empirical Determinants of Its Implementation

This paper features a fourteen-element enterprise risk management framework covering the governance, structure, and process dimensions and provides empirical determinants for its implementation among public listed companies in Malaysia. The framework highlights an effective management of firm’s idiosyncratic risks. The paper aims to present an empirical evidence to support value maximization theory of corporate risk management and simultaneously refute the neo-classical finance theory (NCFT) which postulates that firm-specific risk is irrelevant. Data was collected through questionnaire survey from 128 companies listed on the Malaysian bourse. The empirical results which were derived through product moment correlation tests find that ERM implementation has significant positive associations with reducing cost of financial distress, lowering cost for external financing, improving firm’s credit rating, receiving reward from equity market, reducing informational asymmetries, and reducing agency problem.