Abstract:

The purpose of this paper is to identify the effect of enterprise risk management (ERM) on firm performance with dynamic capabilities as mediating variable. This research using questionnaire survey to gathering data from 21 Indonesia rural banks in Riau Island Province with 31 rural bank's director as respondents. Analysis method in this research is partial least square-structural equation modeling (PLS-SEM). The result showed that ERM and dynamic capabilities have a significant positive effect on the firm performance. The result also indicates that dynamic capabilities mediate the relationship between ERM and firm performance. ERM implementation able to create dynamic capabilities for improved firm performance. Rural banks are advised to implement ERM practices to gain dynamic capabilities to enhance firm performance. This paper is the first comprehensive empirical study that assesses the effect of dynamic capabilities as mediating variable in the relationship between ERM and f...