The Relationship Between Enterprise Risk Management Practices and Financial Performance of Non-financial Firms Listed in Nairobi Securities Exchange

Abstract

There exists recognizable literature by a number of scholars mainly from the developed economies concluding that enterprise risk management offers companies a more comprehensive approach towards risk management than the traditional silo-based risk management perspective.This study determines the enterprise risk management (ERM) practices adopted by non-financial firms listed in Nairobi Securities Exchange and also test where there exist relationship between identified ERM practices and financial performance of these firms as measured by Return on Investment (ROI). Data was collected from a sample of 9 firms out of 30 non-financial firms listed in Nairobi Securities Exchange for the period ended 2011.The research findings show adoption and integration of enterprise risk management in the sample non-financial firms. The adoption of ERM practices is found to be deeply ingrained in the company’s policies with very well and clearly defined structures in existence. While the adoption levels are found to be different in terms of extent, approach, and the strategy, there is enough evidence to support the researcher’s proposition and previous empirical studies findings that more and more firms are adopting and integrating ERMs in their business functions, processes and departments.The study however fails to find existence of a relationship between the firms’ financial performance and the various indicators of risk management practices. There is also no significant connection between the firms’ performance and the adoption of ERM. This does not agree with most of the previous works done regarding the same question but still agrees with some.