Developing Enterprise Risk Management Index for Shariah-Compliant Companies

Numerous firms are implementing enterprise risk management (ERM) because it can increase firm value. However, academic research examining the association between ERM and firm value remains limited due to the lack of suitable and comprehensive dimensions available for measuring ERM. This study directly addresses this research gap and proposes a comprehensive dimension of ERM that effectively measures the construct. ERM Index (ERMi) is proposed as an effective measurement for ERM implementation. ERMi was constructed on the basis of data gathered from a thorough review of literature. The effectiveness of ERMi in measuring ERM implementation was assessed through survey questionnaire among Shariah-compliant companies listed in Bursa Malaysia, and tested using the structural equation modeling technique of partial least squares (PLS-SEM). Empirical findings confirm that 42 items in ERMi that measure the eight principal components of ERM are significant and effective dimensions for ERM implementation. Empirical premise of ERMi, such as its reliability and validity assessed using PLS-SEM, is another important contribution of this study attesting that PLS-SEM is an efficient data analysis technique that can be employed in accounting research.