Financial Performance of the Firms and the Enterprise Risk Management: A Sri Lankan Perspective

Abstract

Risk management and financial performances in organizations had been of mounting importance when it comes to the research arena during the past few decades and is still heavily discussed globally nowadays. The tendency is to take an all-risk encompassing overview of risk management instead of considering risk management from a narrow-based overview. This all-risk encompassing approach to risk management is usually mentioned as Corporate Risk Management. A noticeable dearth of research is there in the studies that have been done on the relationship between corporate risk management and financial performance in organizations. There are so many shreds of evidence for the statement that organizations will enhance their performance by using the corporate risk management concept. The main objective instigated during this study is that the proper match between corporate risk management and, therefore, the firm factors: namely, industry competition, firm size, firm complexity, and monitoring by the board of directors and the relationship among corporate risk management and firm performance. This study identifies the impact of corporate risk management on financial performances of Banks, Diversified Financials, Insurance, Energy, and Retailing sectors in the Colombo Stock Exchange, which include 86 companies, were considered as the population and supported a sample of 60 firms. The research began with a search for companies that indicated they were utilizing the corporate risk management concept in their annual reports covering their fiscal year 2018. The findings indicate that firms should consider the implementation of a corporate risk management system following structural variables affecting the firm. These findings will be interesting to the policymakers, future researchers, as well as to the general public and any third party who are keen on corporate risk and financial performance of Banks, Diversified Financials, Insurance, Energy, and Retailing sectors in Sri Lanka.

Keywords: contingency theory, corporate risk management index, firm performance, Sri Lanka