The Moderating Effect of Political Connections on the Relationship between Managerial Empowerment and Enterprise Risk Management

The enterprise risk management mostly focuses on documenting business unit risks. Capable managers can effectively control the documentation process by company employees. Documentation can increase the reliance on financial reporting provided by management, and therefore capable managers can control the process of documenting information and increase enterprise risk management. On the other hand, the activities of managers with political connections are less transparent and managers hide political information from shareholders. This can increase the corporate risk and reduce risk management. The present study is aimed to investigate the relationship between managerial empowerment and enterprise risk management by examining the moderating role of political connections in companies listed in the Tehran Stock Exchange (TSE). After applying some of the limitations, the statistical population of the present study, consists of 140 companies listed in the Tehran Stock Exchange during 2013 to 2019. Multiple linear regression model is used to test the research hypotheses. We find that there is a positive and significant relationship between managerial empowerment and enterprise risk management. In fact, in companies with more capable managers, enterprise risk management is higher. The results showed that political connection has a negative and significant effect on the relationship between managerial empowerment and enterprise risk management. In other words, in companies with political connections, managers are less capable to improve enterprise risk management practices.