The Impact of Enterprise Risk Management on Risk-Adjusted Performance in Tehran Stock Exchange Listed Firms
Keywords:
Enterprise risk management, risk-adjusted performance, Hewitt and Liebnerg's (2009) enterprise risk management modelAbstract
Objective: The purpose of this study is to investigate the effect of an extended enterprise risk management (ERM) model on risk-adjusted financial performance in publicly listed firms.
Methodology: This applied, developmental, and retrospective study used archival financial data from firms listed on the Tehran Stock Exchange from 2016 to 2023. After applying systematic sampling criteria, 102 firms were selected, yielding 816 firm-year observations. ERM was measured using an extended version of the Hoyt and Liebenberg (2011) model, while risk-adjusted performance was calculated based on excess return adjusted for systematic risk. A regression model was employed to examine the relationship between the ARES index and firms’ risk-adjusted performance.
Findings: Regression results show that the ERM deviation index (ARES) has a significant negative effect on risk-adjusted performance (β = −0.2142, p < 0.001). The model is statistically significant (F = 28.64, p < 0.001), and the Durbin–Watson statistic (1.98) indicates no autocorrelation. However, the R² value of 0.044 suggests that ARES explains only 4.4% of the variance in risk-adjusted performance.
Conclusion: The findings indicate that larger deviations from optimal ERM implementation reduce firms’ risk-adjusted performance, emphasizing the importance of strengthening ERM frameworks, internal controls, and governance systems. Although ERM significantly influences performance, its explanatory power remains limited, implying that broader financial, operational, and organizational factors also shape performance outcomes. The extended ERM model provides a more precise assessment of risk management effectiveness and supports improved decision-making under uncertainty.
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Copyright (c) 2025 SADIK RAHEEM KHAZAL SARAY, Nahid Maleki Nia, Haider Atta Zbain, Mohammad Alimoradi (Author)
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