Enterprise Risk Management and Financial Performance: Evidence from Banks in Emerging Economies

Abstract

Existing governance indices rarely isolate risk-specific oversight from broader board attributes, leaving the valuation relevance of financial risk governance in banking empirically unresolved. This study addresses that gap by introducing a multidimensional Financial Risk Governance Index (FRGI) and testing its effect on firm value among 100 listed commercial banks across ten emerging economies (Indonesia, Malaysia, Thailand, the Philippines, Vietnam, India, Brazil, Turkey, Russia, and South Africa) over 2013–2023. The FRGI aggregates indicators of board-level risk oversight, Chief Risk Officer presence, risk disclosure, and enterprise risk management integration, validated through exploratory and confirmatory factor analysis. Firm value is proxied by Tobin's Q and price-to-book value; the empirical strategy proceeds from pooled OLS to two-way fixed effects and random effects, and culminates in a two-step System GMM estimator to address endogeneity and the dynamic persistence of firm value. Financial risk governance is found to exert a positive and statistically significant effect on firm value, a result that holds across estimators, alternative FRGI weighting schemes, and alternative firm-value measures. The effect is significantly stronger for larger and more profitable banks, whereas high leverage attenuates it, indicating that governance effectiveness is conditional rather than uniform across institutions. These findings position financial risk governance as a distinct, risk-specific determinant of firm value in emerging banking markets and suggest that strengthening risk-oriented governance structures can enhance market confidence and long-term institutional resilience.