Drivers of ERM in SMEs: Which Corporate Governance Features Matter?

This study explores which corporate governance (CG) features matter in shaping enterprise risk management (ERM) development within small- and medium-sized enterprises (SMEs). The study relies on a survey questionnaire submitted to a sample of Italian SMEs and adopts regression analysis to test if the presence of family ownership, board of directors, external managers and prospective strategic orientation affect the overall level of ERM development as well as its three dimensions of risk identification, assessment, and monitoring. The empirical analysis reveals that family-owned SMEs are associated to lower ERM development compared to non-family ones, especially in terms of risk identification and assessment. SMEs that are governed by a collective board of directors have better ERM in place than those with a sole director. Counterintuitively, the presence of external managers in key roles seems to be neutral to ERM development and even detrimental to risk identification. Finally, a prospective strategic orientation fosters ERM, particularly risk assessment and monitoring. The study offers novel empirical evidence to understand which CG features affect ERM development in the specific context of SMEs, a matter still under-investigated despite SMEs economic relevance. Moreover, the study has practical implications for both internal and external SMEs stakeholders who increasingly regard to ERM as the key to promote better decision-making processes, access to scarce resources, attain competitive advantages, and protect firm reputation.