Proceedings of 32nd International Business Research Conference
23 - 25 November, 2015, Rendezvous Hotel, Melbourne, Australia
ISBN: 978-1-922069-89-4
Risk Management Adoption and Firm Performance: A
Study on Listed Firms in Vietnam
John Kommunuri* Mark Wheaton* Lilibeth Jandug* and Huy Le**
Abstract
Enterprise risk management (ERM) has emerged as a new paradigm for managing
complex portfolio of firm risks. ERM, as a process to strategically manage risks
holistically, has become an indispensible aspect of business operations to help firms
boost their performance. Despite its growing popularity, ERM implementation in most
firms remains fairly immature and is viewed merely as a compliance exercise. When
the implementation of ERM is below the strategic level (i.e. for compliance only) it
increases firms’ costs and complexity of it’s structure, policies and reporting without
significant tangible benefits and hence no value added. The difficulty of quantifying
the value side of ERM implementation has been the main reason for most firms’
reluctance to invest in it as a strategic tool. Our current research contributes to the
existing literature and empirical evidence on risk management by drawing attention
to the performance and value effects of ERM implementation in listed firms in
emerging/transition economies (e.g. Vietnam). Vietnam, as a transition economy,
enjoyed remarkable achievements in the first 20 years of economic renovation (Doi
Moi) from 1986 to 2006. By the end of 2000 the Vietnam’s stock market’s
capitalisation was negligible in economic terms (less than 1% of GDP) but by the end
of 2006 it rose to 22.7% of GDP and the VN-index rose to 150%. Though the country
had experienced rapid economic growth brought about by the massive privatization
and inflow of Foreign Direct Investments (FDI), this growth has slowed down with
high inflation rate in 2008 and the spill over effect of the global financial crisis in 2009.
As a result, the VN-index went down to less than 250 in 2009 as compared to 1170
in 2007. As with other emerging/transition economies, the country is yet to
strengthen its institutional capacity (e.g. legal & market infrastructure) to support its
rapid economic expansion. Firms in Vietnam may be able to secure competitive
advantage by using their resources as key source of competitive advantage. In this
paper we test to see whether firms in Vietnam have a proper risk management
practices implemented as part of their strategy and whether this provides an effective
means of securing competitive advantage and has a material effect on firms’
performance and value. Our results show, for the sample period from 2009-2013,
strong empirical evidence that the benefits of risk management implementation are
greater for firms that have proper risk management practices. However, for most
firms this implementation has become a costly exercise and thereby has a negative
effect on performance. Our results also indicate that for high leverage firms the
benefits are greater and show positive and significant impact on firm performance
and value.
Keywords: Risk management, emerging economy, firm performance, firm value
JEL: M10, M40, N25
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* School of Accountancy, Centre of Commerce and Management, RMIT University, Vietnam
**Asia Graduate Centre, RMIT University, Vietnam