358 Journal of Advanced Management Science Vol. 1, No. 4, December 2013 ©2013 Engineering and Technology Publishing doi: 10.12720/joams.1.4.358-362 Does Enterprise Risk Management Create Value Norlida Abdul Manab Department of Banking and Risk Management, School of Economics, Finance and Banking, Universiti Utara Malaysia, Malaysia E-mail: norlida@uum.edu.my Zahiruddin Ghazali Department of Finance, School of Economics Finance and Banking, Universiti Utara Malaysia, Malaysia E-mail: uddin@uum.edu.my Abstract—This research paper examines whether the enterprise risk management (ERM) practices can create value to Malaysian public listed companies (PLCs) in Malaysia. The sample consists of 417 PLCs in Malaysia. The analysis focuses on the companies’ financial characteristics by using stepwise multiple regressions. This research ventures into understanding the influence of financial ratios and risk management on shareholders wealth. The findings show that return on equity, opacity, debt over asset, operating margin, cost of financing and taxation, and financial slack are significant for financial companies. While, only return on asset is significant for financial companies. This is could be due to the nature of financial companies that are highly regulated. Index Terms—enterprise risk management, shareholder value, corporate governance, public listed companies, Malaysia I. INTRODUCTION The disintegration of traditional risk management (TRM) and also the influences of external and internal factors to business risks, as well as the rapid growth of economies, have triggered more demand and enforcement of effective risk management by most countries. It is widely accepted that effective risk management is the core of successful companies, regardless of size or industry sector. A series of company failures, corporate scandals, and frauds are other reasons for companies to effectively implement risk management. In Malaysia, the 1997 Asian financial crisis had affected one tenth of the 800 public-listed companies on the Bursa Malaysia and poor risk management was cited as a major factor of the companies’ failure [1]. This has caused more severe corporate governance problems in publicly listed companies. The problems include ineffective board of directors, and lack of awareness and responsibilities among members of the boards. Subsequently, after the crisis, the issue of corporate governance has received much attention in Malaysia where the government directly emphasized the listed companies Manuscript received July 10, 2013; revised September 28, 2013. to be more proactive in controlling risk and maintaining good reporting. In the Malaysian Code on corporate governance 2000, risk management initiative has been integrated as one of the important part of corporate governance code and has been cited as a key responsibility of the board of directors. The Code is incorporated into the new Bursa Listing Requirements and it is applied to all PLCs in Malaysia. The PLCs are required to disclose their Risk Management, Internal Control and Corporate Governance Guidelines in the annual report to ensure the transparency in delivering information to their shareholders, stakeholders, and other related bodies. However, financial companies are highly regulated compared to other types of companies [2], [3]. This is because they are exposed to financial risk, which is more complex and requires a broad skill and knowledge with specific tools to manage risks. Corporate governance compliance has been cited as the most motivation factor for non-financial companies to implement ERM [4]. Effectively managing or controlling the factors that cause risk can result in market leadership, increasing a company’s growth and investor confidence [5]. Corporate entities believe that the successful operation of any business depends on risk management [6]. This has been highlighted as in [7], that there is evidence in terms of theories that show how value can be created from the adoption and application of risk management and how risk can also destroy corporate value. Shareholder value is a financial indicator that has been used as a measurement of reference to the successful implementation of ERM practices. Reference [8] (p.38) noted that ERM “must be ‘measurable’ and the value proposition will assist companies to create competitive advantage, improve business performance and reduce cost”. Several research findings agreed that ERM implementation can reduce the overall risk profile by reducing the cost of capital and increasing the company’s performance, and these will lead to maximise shareholder value [9]. Reference [10] found that ERM helps companies to manage the bottom line and increases shareholder value by increasing earnings growth, revenue growth, return on capital, earning consistency, and reducing expenses.