The impact of enterprise risk management on financial performance: Evidence from the GCC Islamic banks

Abstract

Enterprise Risk Management (ERM) is a contemporary trend that has gained momentum in recent years. ERM is a comprehensive approach to risk management that considers both operational and strategic risks that affect business objectives and success. The present research investigates the impact of ERM on the financial performance (FP) of listed Islamic banks in the Gulf Cooperation Council (GCC) countries. This study takes a quantitative approach, employing secondary data collection methods and content analysis. The study analyses a sample of 221 yearly observations from 23 listed Islamic banks in the GCC from 2011–2020. The ERM implementation and FP measures were derived from previous studies. The study discovered that ERM implementation is associated with an increase in accounting performance but not with changes in market performance for Islamic banks. Our study confirms that Islamic banks perform better in the short term after implementing ERM controls but have no impact on long-term value creation. This study provides valuable insight on the benefits of enhancing GCC Islamic banks' ERM implementation decision-making processes. Finally, the empirical findings can assist managers, policymakers, and regulators in improving bank performance by implementing best practices of ERM in GCC Islamic banks and countries with similar socioeconomic environments.