Effective Risk Management and Sustainable Corporate Performance Integrating Innovation and Intellectual Capital: An Application on Istanbul Exchange Market

Abstract

Risk management requires firms to mitigate the negative consequences of market dynamics on their performance outcomes. Traditional risk management solely addresses the threats and negative consequences of risk. However, total (effective) risk management is capable of regulating out-of-control market conditions to boost corporate performance by restraining market volatility and hence providing return sustainability considering the opportunities of risk as well. Based on a sample of 286 firm-year observations drawn from 26 firms listed on Borsa Istanbul, BIST-50 index, the empirical study examines the association between total risk management and firm performance and the moderating role of innovation, intellectual capital, and the pandemic period for the years 2011-2021. The analysis is performed by applying the hierarchical panel regression using ROE and ROI as proxies to measure firm performance. The results have shown that there is a positive association between total risk management and performance measures, especially among firms applying more innovation and intellectual capital investments. However, the effect of innovation on the performance relationship of total risk management (ROE) was found to be negative surprisingly. Moreover, results suggest that total risk management has a lower positive association with firm performance during the pandemic period for both performance measures.