The Effect of Enterprise Risk Management and Compliance Practices on The Firm Performance of Indonesian Banking Companies

Tewu, ML Denny and Bernarto, Innocentius and Suwarno, Suwarno and Lisdiono, Purwatiningsih (2024) The Effect of Enterprise Risk Management and Compliance Practices on The Firm Performance of Indonesian Banking Companies. Indonesian Journal of Business and Entrepreneurship, 10 (1). pp. 52-64. ISSN 2407 7321

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Abstract

Enterprise Risk Management (ERM) practices are particularly crucial in this industry to ensure stability and compliance with regulatory requirements. This study examines the effect of ERM on a firm’s operational and financial performances by using two mediating variables of compliance practices and IT strategy. By using a quantitative approach, data was collected through purposive random sampling from 250 bank managers in Jabodetabek, Indonesia. The study found that ERM was found to influence financial and operational performance positively and significantly. Moreover, compliance practices positively and significantly affect both financial and operational performance. IT strategy also has a positive and significant impact on firm performance. In testing the mediating effect, IT strategy partially mediates the relationship between ERM and performance, as do compliance practices. These findings highlight the importance of ERM, IT strategy, and compliance practices in enhancing the performance of banking companies in Indonesia. The findings validate the increasing importance of risk management in the financial landscape in Indonesia. The recognition of the banking sector's complexity and vulnerability to diverse risk types, including credit, market, operational, and regulatory risks, underscores the critical role of risk management practices. Keywords: enterprise risk management, compliance practices, it strategy, financial performance, operational performance / Praktik Enterprise Risk Management (ERM) memiliki peranan yang sangat penting dalam industri ini untuk memastikan stabilitas dan kepatuhan terhadap persyaratan regulasi. Tujuan dari penelitian ini adalah untuk menguji ERM terhadap kinerja operasional dan keuangan perusahaan dengan menggunakan praktik kepatuhan dan strategi TI sebagai variabel mediasi. Dengan pendekatan kuantitatif, data dikumpulkan melalui pengambilan sampel acak yang disengaja dari 250 manajer bank di Jabodetabek, Indonesia. Penelitian ini menemukan bahwa Pengelolaan Risiko Enterprise ternyata memengaruhi kinerja keuangan dan operasional secara positif dan signifikan. Selain itu, praktik kepatuhan berpengaruh positif dan signifikan terhadap kinerja keuangan dan operasional. Strategi TI juga memiliki dampak positif dan signifikan pada kinerja perusahaan. Dalam pengujian efek mediasi, strategi TI sebagian menghantarkan hubungan antara ERM dan kinerja, begitu juga dengan praktik kepatuhan. Temuan ini menyoroti pentingnya ERM, strategi TI, dan praktik kepatuhan dalam meningkatkan kinerja perusahaan perbankan di Indonesia. Temuan ini memvalidasi peningkatan pentingnya manajemen risiko dalam lanskap keuangan di Indonesia. Pengakuan terhadap kompleksitas sektor perbankan dan kerentanannya terhadap berbagai jenis risiko, termasuk risiko kredit, risiko pasar, risiko operasional, dan risiko regulasi, menegaskan peran kritis praktik manajemen risiko. Kata kunci: manajemen risiko, praktik kepatuhan, strategi IT, kinerja keuangan, kinerja operasional

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