Enterprise risk management practices, intellectual capital and organizational performance of Kenyan state corporations

Abstract

Successful economic performance and value creation are considered as the major drivers for an organization in a dynamic business environment. Performance of State Corporations in Kenya is of interest since they play a critical in enhancing economic and national development. Enterprise risks pose threats to the ability of an organization to execute business processes and create value. This research sought to examine the moderating effect of intellectual capital on the relationship between enterprise risk management ERM practices and organizational performance of state corporations in Kenya. The specific objectives of the study were: to determine the influence of risk structure practices on organizational performance of state corporations in Kenya, to establish the influence of risk governance practices on organizational performance of state corporations in Kenya, to examine the influence of risk management process practices on organizational performance of state corporations in Kenya, and to establish the moderating effect of intellectual capital on the relationship between ERM practices and organizational performance of state corporations in Kenya. This study adopted a positivist approach and was guided by agency theory and resource based theories in explaining the different perspectives in which intellectual capital and ERM practices affect organizational performance. The study used explanatory research design. Primary data on ERM practices, intellectual capital and organizational performance was collected using structured questionnaires. A survey was carried out on 218 state corporations in Kenya. Data collected was analyzed by use of descriptive and inferential statistics. The research hypotheses were tested using hierarchical multiple regression analysis. The results revealed that ERM structure practices had a positive and significant effect (β = 0.27, p<0.05) on organizational performance. ERM governance practices were found to positively and significantly (β=0.33, p<0.05) influence organizational performance. In addition, ERM process practices had a positive and significant effect (β=0.21, p< 0.05) on organizational performance. Furthermore, the study found that intellectual capital had an enhancing and significant moderation effect on the relationship between ERM Structure practice (β =.314, ρ< .05, ΔR 2 =.010), ERM governance practices (β =.550, ρ< .05, ΔR 2 =.019) and ERM process practices performance (β = .419, ρ< .05, ΔR 2 =.015) and organizational performance. In conclusion, ERM structure, governance and risk management process practices enhances organizational performance. In addition, intellectual capital enhances the relationship between ERM practices and organizational performance of SCs in Kenya. The study recommends to policy makers that enterprise risk management needs to be considered as a strategic objective in SCs. Therefore, it is necessary to integrate risk management practices across all functions. Further, the study supports agency theory by focusing on ERM as a hedging tool to avoid principal -agency conflict. It also supports, resource based theories by centering intellectual capital as a resource deployed to enhance competitive advantage. Lastly, the study contributes to knowledge on organizational performance by providing the empirical evidence on the moderating effect of intellectual capital on the relationship between ERM practices and organizational performance.