The determinants of enterprise risk management in Ghanaian and South African insurers: insights from a quantile regression analysis

Abstract Over the past two decades, business practitioners have been shifting from a silo perspective to a comprehensive perspective of managing risk, which is referred to as enterprise risk management (ERM). Enterprise risk management provides resilience by holistically managing the risks within an organisation. Despite its importance, empirical evidence highlighting the factors influencing ERM adoption remains underexplored, particularly in developing countries like South Africa and Ghana, a gap addressed by this study. Accordingly, this study recruits panel logistic regression to examine the factors influencing the adoption of ERM. Another novel aspect of the study is the inclusion of the quantile regression analysis applied to panel data between 2015 and 2018. This technique accounts for the heterogeneity of the relationships at different levels of ERM adoption. Drawing from the contingency theory, this paper presents that a variety of factors stimulate the adoption of ERM. Thus, the implementation of ERM in both countries is positively influenced by the Big4 audit firms, ownership structure, leverage, firm size, and industrial diversification. Further insights from the quantile regression show that lower levels of firm size and profitability encourage the adoption of ERM in the South African sample, whereas significant increases in these factors weaken it, suggesting an inverted U-shaped relationship. In contrast, leverage exhibits a U-shaped relationship. More so, the study identifies an inverted U-shaped relationship between leverage, profitability, and ERM adoption for Ghana. Additionally, industrial diversification, engagement with the Big4 audit firms, and ownership consistently exhibit significant positive effects on ERM adoption across various quantiles in both samples. The results underscore the importance of these factors to ERM. Given this, insurers should consciously capitalise on their organisational strengths, such as diversification and partnerships with reputable audit firms, to enhance ERM adoption. Also, insurers that are highly diversified and rely on leverage to fund their operations should employ ERM to manage the associated complexities.