Mediating role of enterprise risk management practices between business strategy and SME performance

ABSTRACT Increased competition has highlighted the need for more effective firm level strategies for SMEs to achieve competitive advantage. In fact, SMEs face higher risks in terms of globalization as a result of their limited resources and small size. This study highlights the importance of business strategy in SME performance with the mediating role of enterprise risk management. A structured questionnaire was used to collect data from 327 Pakistani SMEs. The hypotheses are tested using Structural Equation Modeling (SEM) in AMOS. The results indicate that business strategy has a significant influence on SME performance and enterprise risk management. In addition, enterprise risk management partially mediates the relationship between business strategy and SME performance. This study finds that firms with a unique business strategy endorse formal risk management practices which in turn facilitate superior performance in the market. Implications for practices are discussed.