The Effect of Enterprise Risk Management on Firm Performance: the Mediating Role of Research & Development Investment

Abstract

[Abstract] This study explores the dynamics of the relationship between Enterprise Risk Management (ERM) and firm performance, including the mediating role of innovation management. While previous research has separately examined various links between ERM and firm performance and between innovation and firm performance, a research gap remains in studying the dynamics of the ERM-firm strategy-performance relationship, also considering the mediating role of innovation management. We used structural equation modelling (SEM) to measure the impact of ERM on firm performance directly and indirectly through its influence on the firm’s innovation management, represented by R&D investment. We gathered data from 2015 to 2019 from a sample of 2,666 companies in Europe, East Asia, and North America. The results reveal that ERM exerts both direct and indirect influences on firm performance, the latter occurring through its effect on the firm’s innovation management. These findings contribute to the literature on the resource-based view of the firm, underscoring the potential of the strategic alignment between innovation management and ERM, and reinforcing ERM’s importance on firm performance.