The Influence of Enterprise Risk Management on Performance of Companies Listed at the Nairobi Securities Exchange

Abstract

Enterprise Risk Management (ERM) is a field of study which advocates for the establishment and institutionalization of a formally documented and board approved process for risk identification, measurement and control in a company with a view to ensure that value is created and preserved. The discipline advocates for a holistic view of a company‟s ecosystem (governance, strategy, processes, people, systems and performance) with a view to proactive identification and control of all potential threats and opportunities, which can either impair or enhance the ability of a company to achieving it primary objectives of maximizing stakeholder value. The objective of this research was to establish the influence of enterprise risk management on the financial performance of companies publicly listed in the Nairobi Securities Exchange. The use of descriptive survey was the appropriate approach as it made it possible to collect primary data on the independent variable (ERM) at a point in time. The research targeted all the 63 companies listed at the Nairobi Securities Exchange (NSE Website, 2017) and used a five point Likert scale questionnaire to collect the primary data. The influence of ERM programme implementation on the financial performance of listed companies was tested using linear regression, and out of the study several conclusions were arrived at, which include; a properly defined, documented and instituted ERM programme is essential for improved and sustained corporate performance; that board oversight over the management of key risks affecting companies is essential; that a well-defined risk management framework should be in place and must be communicated to the entire staff of a company for its implementation; that regular risks and controls self-assessment (RCSA) exercises should be conducted; that staff should be regularly rewarded for their efforts in good risk management practices; that regular risk management trainings should be conducted to all staff with a view to increase their risk management awareness; and equipping all the risk management teams with the necessary tools and processes for effective implementation of enterprise risk management practices within the companies.