Board diversity and enterprise risk management: Study in emerging and developed countries

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Abstract

Globalization and the uncertainty of the business environment pose challenges to companies. The unpredictable COVID-19 pandemic has caused a significant global recession. For this reason, every company is required to improve governance and risk management practices to reduce the impact of this uncertainty. This study investigated the effect of board diversity on enterprise risk management (ERM) in companies in the USA, China, and Indonesia using the enterprise risk management index (ERMI) to measure ERM. ERMI is a means to assess an organization’s ERM implementation effectiveness index based on its ability to achieve its goals based on four dimensions (strategy, operations, reporting, and compliance). Different findings were uncovered in the 3 countries studied using the panel regression analysis technique on a sample of 629 companies during an observation period of 2011–2021. In the USA, a country known for prominent individualism, overall gender diversity does not have a significant relationship with risk-management-related decision-making. In China, gender and cultural diversities negatively impact ERM. On the other hand, in the Indonesian context, skill diversity has no significant relationship with risk management, while tenure diversity has a negative effect on ERM. The results of this study provided recommendations for regulators and company management in developing good corporate governance.

Keywords: Diversity, Enterprise Risk Management, Governance, Tenure, Comparative Study, Developing and Developed Countries

Authors’ individual contribution: The Author is responsible for all the contributions to the paper according to CRediT (Contributor Roles Taxonomy) standards.

Declaration of conflicting interests: The Author declares that there is no conflict of interest.

JEL Classification: M410

Received: 23.05.2023
Accepted: 09.02.2024
Published online: 13.02.2024

How to cite this paper: Ghofar, A. (2024). Board diversity and enterprise risk management: Study in emerging and developed countries. Corporate Governance and Organizational Behavior Review, 8(1), 180–190. https://doi.org/10.22495/cgobrv8i1p15