Does Intellectual Capital Moderate the Relationship Between Enterprise Risk Management and Market Performance? Evidence from Indonesian Banking Industry

Abstract

Despite an increasing number of studies on the link between enterprise risk management (ERM) and market performance which are still debatable, the literature has predominantly focused on relationship between them without considering moderating factors. This study not only introduces intellectual capital as a moderator variable that potentially moderates the ERM-market performance relationship, but also uses a comprehensive list of ERM measurement. This study analyzed degree of enterprise risk management (DERM) using Lundqvist’s comprehensive list of ERM measurement and Pulic’s value added intellectual coefficient (VAICTM) for intellectual capital in 99 banking companies that listed in Indonesia stock exchange for three years period. The result suggests that there is a positive significant relationship between DERM and market performance in Indonesian banking sector, by using comprehensive ERM measurement. Partially, leverage is the variable that has significant impact to market performance. Intellectual capital as moderating variable is also significant yet has weakening effect. The notable implication of this study is that the importance of comprehensive enterprise risk management and intellectual capital must be highly concerned by management as it will affect shareholder’s perception to the company