Does corporate risk management lead to risk mitigation and firm performance? Evidence from Asian emerging markets

Abstract

Purpose This study aims to verify the significance of Andersen (2008) corporate risk management (CRM) framework in Asian emerging markets (AEMs) to control firm risk and improve firm performance. Design/methodology/approach The cross-sectional analyses are performed on a sample of 4,609 firms across nine Asian emerging countries using 2SLS estimation technique. Findings The empirical findings show that the adoption of CRM not only enhances firm performance by increasing the firm ability to capitalize on the market opportunity but also plays a significant role in reducing firm risk. The findings of this study assert that by institutionalizing risk management practices into an integrated CRM framework, the firm can reap multiple benefits by maintaining better contractual agreements and strategic partnerships with key stakeholders. Originality/value The study shifts the focus of CRM away from Western countries toward AEMs, which has been afflicted by high risks and uncertainties. The effectiveness of CRM against firm risk is established by dividing firm risk into firm-specific risk and systematic risk. Furthermore, this study also establishes that CRM not only leads to high returns but also reduces firm operational and production costs. Overall, the study provides a compelling argument to implement CRM for improving organizational performance and managing risks in a strategic and integrated manner. The findings are also relevant to risk management practitioners, as well as to academicians interested in the broader fields of corporate finance and strategy.