Enterprise Risk Management Practice and Performance of Selected Commercial State Corporations in Kenya

Abstract

The purpose of this study was to establish the impact of enterprise risk management practice on the performance of the 34 commercial state corporations in Kenya. The study was guided by the following objectives:- to determine whether risk control self-assessment affects the performance of commercial state corporations in Kenya; to establish how identification of risk indicators affects the performance of commercial state corporations in Kenya; to examine whether incident management affects the performance of commercial state corporations in Kenya; to determine how compliance of both internal and external regulations affect the performance of commercial state corporations in Kenya; and to determine how action tracking influences the performance of commercial state corporations in Kenya.Literature review focused on theoretical literature and enterprise risk management practices empirical review that was concluded with conceptual framework that guided the study. The study adopted a descriptive study design. The target population for this research was 136 staff obtained from the 34 CS corporations with responses from managers, internal audit managers, operations managers and accountants. Multiple regression analysis was applied to the data to examine the role of the various aspects of ERM practices on the performance of the commercial state corporations in Kenya.The findings of this study indicated that ERM practice was popular among commercial state corporations and which is practiced most is the identification of key risk indicators. Risk and control self-assessment practice of the corporations also was found to be a common practice that is undertaken by corporations. The coefficient of the independent variables (X1 – X5) was significant at 5% significance level thus all the five hypothesis were true indicating as significant effect on CS corporations performance. The coefficient of the determination under identification of risk indicators was the highest of the independent variables and this meant that a unit increase in the determination towards ERM increased the commercial state corporation’s performance by 3.272 units. One of the conclusion drawn by the study is that most of the Commercial SCs in Kenya have ERM frameworks as well as implementation plans. They acknowledge the importance of implementing ERM from both regulatory compliance perspective (with CMA) and business value addition perspective.The study also found out that a significant number of the Commercial SCs are still at the planning stages where ERM is not a regulatory requirement. Their Performance may be threatened due to weak ERM system, complexity, unpredictability, evolving risks and globalization of trading activities. The study recommends that all the commercial SCs in Kenya not only should employ robust enterprise risk management practices but also fully implement their ERM frameworks. Both are likely to influence their financial performance in one way or another. In addition the study recommends that in order for commercial SCs to improve on their financial performance, they should focus on full involvement of all relevant stakeholders at all the ERM implementation stages. The government should on a frequent basis, evaluate the enterprise risk management practices and measures put in place by the commercial SCs in Kenya and reward those with excellent practices. This will encourage more firms to institute ERM practices as well as create more awareness on the need for the same in all organisations.Lastly the, study recommended that risk analysis should be upheld, enhanced and prioritized in the whole process of risk management. Further, corporate governance should be enhanced in order to support risk analysis. Elements such as risk forecasts should not be ignored and should be further enhanced.