The development of an empirical enterprise risk management values scale accounting for the effect of culture in emerging market managers

Linke, Arthur (2018-03)

Thesis (PhD)--Stellenbosch University, 2018.


ENGLISH SUMMARY: The purpose of management is to support the organisation in achieving its objectives and increase value. Hereby taking risk represents the essence of business activity, the outcome of which is either value creation or destruction for the organisation. Enterprise Risk Management (ERM) represents a paradigm envisioned to provide a holistic framework for the risk management process, and thereby support the organisation in achieving its objectives, providing both resilience and opportunity for organisations in the face of uncertainty. Recent global financial and economic crises have led both academics and practitioners to identify shortcomings in risk management as one the key causes of these crises As such, the study of ERM is currently high on the business and management sciences’ research agenda. One of the key ways of bridging the gap between academia and practice in the business and management sciences domain is development of empirical measurement scales for abstract constructs, such as enterprise risk management values, that measure phenomena incorporating people, practices and organisations. A review of the relevant literature clearly highlighted the need for a robust academically-validated instrument that will provide an enterprise risk management measurement scale comprising items and constructs that can act as variables for empirical studies. The key contribution of this study is an item-based and empirically developed ERM Values Scale (ERMVS) comprised of manifest variables resulting in a latent variable ERM values construct structure. Utilisation of this scale will ultimately benefit organisations in achieving their objectives and creating value. The study’s methodology was carefully constructed to take into account all the requirements for a robust scale and construct development design, including the reporting of all findings during the process. Firstly, a new theoretical ERM construct domain cutting across various management sciences disciplines and ERM practice was clearly defined – comprised of ERM pillars and a pool of ERM items (manifest variables). A new, empirically-validated ERMVS then resulted out of an ERM expert group review of the ERM item pool, which incorporated intra-class correlation testing to determine content validity of the scale. The ERMVS was then taken through rigorous empirical reliability and validity testing in two separate samples comprised of risk managers in the telecommunications industry, and members of the Institute of Risk Management of South Africa (IRMSA). Relevant empirical tests used in this process included Cronbach’s alpha, exploratory factor analysis and confirmatory factor analysis which included structural equation modelling. A new two-factor model of ERM values (ERMVs), comprised of organic and mechanistic constructs, was determined to be reliable and valid and exhibited goodness of fit on several aspects. Finally, the ERMVS was tested for the effect of culture in emerging market managers in a cross-validation exercise, whereby the ERMVS’ constructs exhibited statistically significant relationships with certain culture values dimensions such as Uncertainty Avoidance (UAI).

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