The effect of enterprise risk management on firm value: Evidence from Vietnam industry listed enterprises

ERM -0.0867 1 
SIZE 0.0208 -0.1415 1 
LEVERAGE -0.0373 -0.1697 0.2610 1 
GR -0.00159 -0.0775 0.0676 0.3293 1 
ROA 0.3639 0.0307 0.06505 -0.3321 -0.0217 1 
DIVIDENDS 0.1703 0.0408 0.0310 -0.1074 -0.0862 0.365 1 
(Source: Results of data processing) 
According to the statistics obtained from the regression analysis as shown in Table 3, Q has a positive relationship with SIZE, 
ROA and DIVIDENDS, and the opposite relationship with ERM, LEVERAGE, and GR. The results show that the correlation 
coefficient between any pair independent variables in the model is no less than 0.8 and therefore multicollinearity is unlikely 
to occur. 
T. D. Phan et al. /Accounting 6 (2020) 477
4.3. Empirical results 
The value of the Breusch-Pagan LM test statistic, 5329.324 is well into the upper tail of a Chi-Sqaure of 2926, and we strongly 
reject the null of no correlation at conventional significance levels. 
Both the Pesaran scaled Breusch-Pagan LM, and the Baltagi et al. bias-adjusted LM tests are asymptotically standard normal, 
and the test statistic results of 31.80 and 25.39 respectively, strongly reject the null at conventional levels. While the test statistic 
value of 10.9 is significantly below that of the scaled LM tests, the Pesaran CD test still rejects the null at conventional 
significance levels. 
Table 4 
Cross–section dependence tests 
Test Statistic d.f. Prob. 
Breusch-Pagan LM 5359.324 2926 0.0000 
Pesaran scaled LM 31.80883 0.0000 
Bias-corrected scaled LM 25.39216 0.0000 
Pesaran CD 10.99579 0.0000 
Hausman test in Table 5 is significant at 0.01; and therefore, random effect model is rejected in favor of fixed effect model. 
Table 5 
Hausman test 
Test Summary Chi-Sq. Statistic Chi-Sq. d.f. Prob. 
Cross-section random 17.888091 6 0.0065 
(Source: Data processing results of authors) 
According to Hausman's contrast, it is determined that the Fixed effects model would be the best option. The empirical results 
of the study are shown in Table 6, respectively. R-square value was found to be 0.6326. This implies that approximately 63.26% 
of the observed variation can be explained by the model's inputs while the remaining 36.74% was due to the other variables not 
captured in this study. The results of test show that F=8.8063，P=0.000，adjusted R2 is 0.5608. In the case of large samples 
(n=77), the fitness (R2) of the model is good enough. Durbin-Watson tests for autocorrelation in residuals from a regression 
analysis. The test statistic ranges in between 0 to 4. A value of 1.2852 indicates that there is no autocorrelation. From the 
regression results, we find that the sig. of ERM and return of assets were 0.00, which indicates that the two variables had a 
significant linear relation with firm value，p≤0.01, the sig. of leverage, sale growth and dividends is less than 0.1, and these 
factors, to some extent, have impact on firm value. The sig. of size rate is not significant, so the impact on firm value is not 
obvious. 
Table 6 
Regression Results 
Variable Q t-Statistic 
C 0.7454* 0.6672 
ERM 0.1436*** 2.8874 
SIZE 0.0044 0.1052 
LEVERAGE 0.0211* 1.4629 
GR -0.0030* -0.985 
ROA 1.4254*** 3.8865 
DIVIDENDS -0.0395* -0.8252 
R-squared 0.6326 F-statistic 8.8063 
Adjusted R-squared 0.5608 Prob(F-statistic) 0.0000 
Durbin-Watson stat 1.2852 
***, **, and * indicates statistically significant levels of 1%, 5% and 10%, respectively 
(Source: Data processing results of authors) 
4. Discussion 
The study has used a sample of 77 industry enterprises listed on the stock market over the period 2012-2018 to assess the impact 
of financial risk management on corporate value. In correlation with previous studies both domestically and internationally, the 
study contributes to the empirical evidence on the impact of financial risk management on corporate value in listed industry 
companies listed on Vietnam's stock market. The research results show that only ERM and ROA are thought to have positive 
effects on Tobin’s Q at significance level < 1%. First, ERM has a positive relationship with Tobin's Q (accepts H1). When 
businesses conduct risk management, the value of the business will increase by 0.14 times compared to not conducting financial 
risk management. This result is consistent with previous studies of Hoyt and Liebenberg (2011), Bertinetti et al. (2013), Baxter 
 478
et al. (2013), Eckles et al. (2014), and Farrell and Gallagher (2015). If businesses conduct financial risk management, it will 
contribute to good control of financial risk. This has a positive impact on the performance of the business and its value. 
Second, there is no indirect effect of firm size on the firm value of industry firms, so the hypothesis H2 is rejected. A big asset 
value of a firm does not guarantee that investor’s impression towards the firm will increase. Investors do not think of firm size 
as a base of investment decision. The study done by Nwamaka and Ezeabasili (2017) showed that the firms with big assets do 
not always share profit to the shareholder. Firm which retains the profit rather than share it as dividend might affect the stock 
price and its firm value. The results of this study are in line with the finding of Setiadharma and Machali (2017), but in contrast 
to the study result of Liebenberg and Hoyt (2003), and Allayannis and Weston (2001). Third, there is no correlation between 
debt and firm value (H3 is not acceptable). This result is inconsistent with previous studies. Liebenberg and Hoyt (2011) showed 
that the relationship between financial leverage and firm value is positive, however, when the tax shield is lower than the cost 
of financial exhaustion, the firm value reduction. This can be explained by the structure of debt of industrial enterprises in the 
state of imbalance, current debt is mainly short-term debt, long -term debt ratio is still very low. Fourth, ROA has a positive 
relationship with Tobin’s Q (accepting H4). When the ROA is increased by one unit, firm value increases by 1.42 times under 
the condition of other factors unchanged. This result is consistent with the studies of Bertinetti et al. (2013). Good business 
profitability is an important factor that positively influences firm value. Fifth, this analysis shows that leverage mostly does not 
have any significant relationship with examined variables (H5 is not acceptable). The result is in agreement with Tas and Ede 
(2018) and Modigliani and Miller (1958) findings that leverage is unrelated to firm value; and Millers (1977) hypothesis which 
states that the capital structure of a firm does not impact on its market value. For further study, we need to compare leverage of 
our industry firms and global peers. Also, we may extend our data since it is limited with only 7 years in this study. Sixth, there 
is no correlation between sale growth and firm value (H6 is rejected). Jang and Pack (2011) implied that profit creates growth 
but growth impedes profitability. This conclusion is consistent with the results of Anton (2018), Jang and Pack (2011), but in 
contrast to the study result of Allayannis and Weston (2001), Zou (2010), Jin and Jorion (2006), and Carter et al. (2006). 
5. Conclusion 
This study has attempted to examine the impact of ERM implementation on firm value, measured by the Tobin’s Q. The study 
has employed fixed effect dynamic panel data to examine the valuation effect of ERM. Our findings have supported our 
prediction that ERM implementation is likely to affect firm performance adversely. The result can help industry businesses 
explain the impact of financial risk management on corporate value, thereby helping corporate executives to make financial 
decisions, production and business projects accordingly to maximize the value of the business. Industry enterprises need to pay 
special attention to the management of financial risks in enterprises. Industrial enterprises listed on the stock market of Vietnam 
performing financial risk management are still heavy in formality in the financial statements, but have not really paid attention 
to the effectiveness of financial management, results of financial risk management in the enterprise. Therefore, the impact of 
financial risk management on corporate value is not high. 
Acknowledgment 
The authors would like to thank the anonymous referees for constructive comments on earlier version of this paper. 
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