The study examines 47 banking companies listed on the Indonesia Stock Exchange (IDX) over the 2019–2023 period. In an era marked by financial instability, regulatory shifts, and global market uncertainty, effective risk management has become central to corporate survival. The collapse of major international banks in recent years, including Silicon Valley Bank, has reinforced the need for integrated and transparent enterprise risk management systems. Lusmeida and Maharani argue that governance quality plays a decisive role in determining how openly companies disclose their risk exposure
Why Enterprise Risk Management Matters
Enterprise Risk Management (ERM) refers to a structured, organization-wide system for identifying, assessing, and managing risks. The study follows the COSO ERM 2017 framework, which emphasizes board oversight, strategic alignment, and integrated risk control.
In the banking sector, ERM disclosure signals stability and accountability. Transparent risk reporting reduces information gaps between management and shareholders, strengthens investor confidence, and supports regulatory compliance.
However, previous studies produced inconsistent results regarding which governance factors most influence ERM disclosure. This research addresses that gap by focusing specifically on Indonesia’s banking industry between 2019 and 2023
How the Study Was Conducted
Dr. Herlina Lusmeida and Ratu Alifa Agita Maharani used a quantitative research design. The dataset included 235 firm-year observations from 47 banks.
Data sources included:
- Annual reports published by listed banks
- Financial data from S&P Capital IQ
- Official data from the Indonesia Stock Exchange
ERM disclosure was measured through content analysis of 20 COSO-based disclosure items in annual reports. The researchers then applied multiple linear regression analysis using Stata 17 to identify relationships between governance factors and ERM disclosure
The independent variables included:
- Number of audit committee meetings
- Number of board of directors meetings
- Auditor reputation (Big Four vs. non-Big Four)
- Profitability measured by Return on Assets (ROA)
Control variables such as liquidity, firm size, growth, and company age were also included.
Key Findings
The results reveal four major conclusions:
1. Audit Committees Strengthen ERM Disclosure
The frequency of audit committee meetings shows a significant positive effect on ERM disclosure.
Banks with more active audit committees disclose risk information more extensively. The average ERM disclosure score across the sample reached 0.8745 on a scale from 0 to 1, indicating relatively strong overall disclosure
Frequent meetings increase oversight intensity, enhance discussion of strategic risks, and improve internal control monitoring.
2. Boards of Directors Improve Risk Transparency
The number of board meetings also has a significant positive relationship with ERM disclosure.
Active boards enhance accountability, supervise management decisions, and strengthen risk governance. A more engaged board correlates with more comprehensive disclosure of risk management practices.
3. Big Four Auditor Reputation Reduces ERM Disclosure
Contrary to expectations, banks audited by Big Four firms show a significant negative relationship with ERM disclosure.
Auditor reputation was measured using a dummy variable (1 for Big Four, 0 for non-Big Four). The negative coefficient indicates that highly reputable auditors may lead management to adopt a more conservative approach to risk disclosure
Highly reputable auditors apply stricter professional standards and skepticism. As a result, companies may limit disclosure of speculative or difficult-to-verify risk information.
4. Higher Profitability Leads to Lower Risk Disclosure
Profitability, measured by Return on Assets (ROA), also shows a significant negative effect on ERM disclosure.
Banks with stronger profitability may feel less pressure to signal risk transparency because financial performance already appears stable. Conversely, when profitability declines, companies may avoid extensive disclosure to prevent negative investor perceptions.
What This Means for the Banking Industry
The findings highlight that internal governance mechanisms—specifically audit committees and boards of directors—play a stronger role in improving risk transparency than external reputation factors.
For banking executives, the study emphasizes:
- The importance of active governance structures
- The need for consistent and structured ERM reporting
- The value of board-level engagement in risk discussions
For investors, the results suggest that profitability alone is not a reliable indicator of transparency. A profitable bank may still limit risk disclosure.
For regulators such as Indonesia’s Financial Services Authority (OJK) and the Indonesia Stock Exchange (IDX), the findings support the development of standardized ERM disclosure guidelines to ensure comparability across institutions.
Academic Insight from Universitas Pelita Harapan
Dr. Herlina Lusmeida of Universitas Pelita Harapan notes that governance activity reflects institutional commitment to proactive risk management. The study demonstrates that structured oversight—through frequent meetings and board involvement—directly improves the quality of enterprise risk management disclosure
Ratu Alifa Agita Maharani adds that auditor quality does not automatically guarantee broader transparency. Instead, stricter audit standards may encourage more cautious reporting of risk-related information
Their research contributes to the literature on corporate governance and risk disclosure in emerging markets, particularly within Southeast Asia’s banking sector.
Author Profiles
Both researchers specialize in corporate governance and financial transparency in emerging markets.
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