Enterprise risk management and firm value: Evidence from selected commercial banks in Sub-Saharan Africa

Abstract

The study investigated the relationship between enterprise risk management and the firm value of quoted banks in Sub-Saharan Africa using an ex-post facto research design. A sample of twenty-seven (27) commercial banks was obtained from three (3) regions of Sub-Saharan Africa (Nigeria, South Africa, and Kenya). The dependent variable is the firm value (Tobin’s Q), while the independent variable is enterprise risk management (measured using enterprise risk management size, independence, and disclosures). Secondary data were obtained from the annual reports and accounts of the sampled banks in Sub-Saharan Africa from 2012-2021. Data obtained were analyzed using descriptive statistics (mean, median, standard deviation, kurtosis, skewness, and Pearson correlation), diagnostic statistics (variance inflation factor, heteroscedasticity, Ramsey regression specification-error test, Cameron and Trivedi’s decomposition of IM-test,) and inferential statistics (principal component analysis, fixed and random effects panel data regression). The fixed and random effects panel data regression results indicated that while enterprise risk management independence (t= 4.63; prob. = 0.000) and enterprise risk management disclosure (t= 2.68; prob. = 0.008) positively and significantly affect firm value, enterprise risk management size (t=-0.04; prob. = 0.967) insignificantly and negatively affects firm value in Sub-Saharan Africa. Among other recommendations, it was suggested that banks need to promote ERM practices as well as ensure risk compliance among banks in Sub-Saharan Africa. Additionally, banks should increase their level of independence of the risk committee while at the same time increasing their level of enterprise risk management practices in the region.