Enterprise Risk Management and Banks’ Financial Performance: Evidence From West African Countries

International Journal of Research and Innovation in Social Science (IJRISS) | Volume VI, Issue I, January 2022 | ISSN 2454–6186

Enterprise Risk Management and Banks’ Financial Performance: Evidence From West African Countries

Dr. Augustine C. Odubuasi¹, Dr Felix Enaibre Ighosewe² & Dr. Nkechi T. Ofor^3
1Department of Accounting, Hezekiah University, Imo State – Nigeria.
²Department of Accounting, Dennis Osadebay University, Asaba, Delta state
³Department of Accounting, ChukwuemekaOdumegwuOjukwu University, Anambra State.
*Correspondence author

Abstract
This paper studied the effect of enterprise risk management (ERM) on bank performance in three selected African countries over a study period of ten years spanning from 2009 to 2018. The study covered selected banks in Ghana, South Africa and Nigeria. The regressor is ERM measured by strategy, operation, reporting & compliance while the regressed is bank performance measured by return on equity. Also, we controlled for firm size and leverage. The data generated were analysed using Stata 13 version, which assisted the use of some analytical techniques.. Panel regression analysis was conducted alongside Hausman effect test which indicated the better model that was interpreted between Random Effect (RE) and fixed effect (FE) models. As specified by the Hausman test, the FE model was used for model 1 while the random effect model was used to test model 2. The result revealed that enterprise risk management on the overall has a positive significant effect on bank performance provided it takes into consideration control variables like financial leverage and firm size. Hence, the study concludes that, ERM is instrumental to improved banks’ financial performance (ROE). As such, regulatory authorities should come up with legislation(s) that should enforce and strengthen the enactment of enterprise risk management across banks in the study area.

Keywords: Enterprise risk management, Banks’ financial performance, West African Countries

1.0 Introduction

Ordinarily, business entities engage the traditional risk management (TRM), which is an approach that looks at risk management from a silo-based perspective. Moreover, the TRM approach as noted by Moeller (2011) does not provide opportunity for the entity to view risk on the overall. As such, there came a paradigm shift from that narrow or silo-based risk management perspective to a more holistic approach referred to as Efficient Risk Management(ERM) (Soliman& Adam, 2017), which is seen as a strategy that holistically attempts to evaluate and manage the portfolios of risks confronting the entity (Zuo, Isa &Rahman, 2017). Basically, ERM applies efficient risk management (Kopia, Just, Geldmacher & Bubian, 2017). Therefore, for a firm to be able to face the complex internal and external challenges of the modern world, such firm must invest in ERM (Altanashat, Dubai & Alhety, 2019). Hence, ERM methodology is believed to have low likelihood of failure but rather increase the entity’s firm value (Florio & Leoni, 2017).

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