The Role of Enterprise Risk Management Practices in Elevating Financial Sector Performance: Evidence from Jordan

Abstract

As financial industry faces the most diversified risks in comparison to other industries, financial managers should adopt proper holistic risk management system that is enterprise risk management (ERM) in order to reduce risks. In today's volatile and complex market, companies in general and financial organisations in particular have conducted remarkable changes to overcome disadvantages points of conventional silo risk management and performed the necessary progress which is required guarantee an efficient operation of risk management system. The aim of this study to investigate the determinants of effective Enterprise Risk Management (ERM) application, and the potential impact of (ERM) on the performance of Jordanian financial sector companies (94 companies). The study adopted quantitative methodology supported by pragmatism research philosophy. Using Logit Model, the analysis results indicated that firm size, leverage and BOD do reflect a significant impact positive on effective implementation of ERM. Also Chi-Square analysis results, portrayed that ERM implementation possess no effect on the financial indicators (SR, DG, CG and EPS) of the study sample. The results also showed that ERM adoption in Jordan is still in its immature stage, and all respondents agreed on the crucial benefits derived from ERM implementation. Moreover, the study recommended that involvement of top management, proper corporate governance system and employees risk culture awareness would significantly help in reaping the benefits of ERM implementation. The study also recommends that Central Bank of Jordan should enforce the adoption of ERM as mandatory for all financial organization. Finally, companies should take into consideration its capabilities in sustaining unexpected events and build their investment portfolio accordingly and this differ according to business sector involved.