۱- Introduction

۲- Literature review

۳- Methodology

۴- Results

۵- Robustness analysis

۶- Conclusions

References

Abstract

This study investigates the influence of CFO roles on the implementation of ERM initiatives in a sample of Nigerian financial institutions (between 2013-2017). We develop three distinct factors representing the CFO roles namely CFO power, CFO experience and CFO knowledge using principal component factoring. Like prior work, we measure ERM components simultaneously to capture the extent of sophisticated ERM system. Our findings pose that the CFO involvement in ERM implementation remains minimal while the CRO is solely responsible for ERM implementation, which could undermine cost-benefit effectiveness. Our empirical evidence reports that the sophisticated ERM only promote the market evaluation while the accounting performance is undermined. The result then contravenes the expectation that effective ERM enhances accounting performance by mitigating risk exposure. While the sophisticated ERM is significantly positive with leverage, which reveals that ERM implementation does not necessarily reduce the firm risk. This indicates that the ERM implementation remains ineffective to mitigate risks, where the CFO involvement in the ERM initiative is limited. We then advocate that CFOs should be allowed to contribute strongly on some specific aspects of ERM initiatives namely identification and analysis of key risk indicators, the financial implication of risks and integration of ERM into traditional finance activities.

Introduction

With the complexity of the business environment, management seeks to mitigate risks and the ability of firms to identify those risks early has formed part of the critical success factor (Soltanizadeh et al., 2014). This discretion in identifying and managing risk has resulted in the application of different approaches in mitigating such risks. Different interpretations and approaches to mitigating risks have undermined the effective managing risks, which are basically based on prior knowledge, organizational roles and industry (IFAC, 2018; Ojeka et al., 2017a). For instance, the measurement and assessment of risk have been a predominantly quantitative exercise designed to avoid loss or fraud in financial institutions. Since the financial crisis, the adopted approach is tailored to adequately inform decisions and manage uncertainty. Risk management is viewed as activities to prevent rather than processes to retorting crisis. However, the arising challenge with applying this pattern of risk management, which relies solely on mitigating risks increases cost while the resultant benefits to the firm’s success and resilience remains minimal (IFAC, 2018). Enterprise Risk Management (henceforth ERM) is gaining ground among the practitioners and firms adopt it to identify and mitigate risk holistically. ERM approaches risk beyond silo-based view (Gordon et al., 2009). ERM requires the integration of different aspects of an organization and multiple procedures to collectively comprehend the level of an organization’s exposure to uncertainties, which could distort the business objectives and the prospects for growth. ERM analyzes available information, which identifies the success or failures of uncertainties while decisions are based on the potential courses of action. The key goal of risk management is to increase shareholders’ value (COSO, 2004; Pagach and Warr, 2011; Liebenberg and Hoyt, 2003).