Enterprise Risk Management: Re-Conceptualizing the Role of Risk and Trust on Information Sharing in Transnational Alliances

Abstract

Globalization places greater emphasis on the development of transnational alliances. The greatest benefits from alliances are derived from high-level information sharing, but vulnerability escalates with information sharing. This study examines risk in transnational alliances based on a theoretical model drawing from enterprise risk management (ERM) as a strategic management effort. This theoretical model posits that ERM strategies focus on business risk as the primary determinant of alliance partner selection and continuity, particularly within global relationships, whereas prior management control research focused on trust. The purpose of this study is to examine the influence of ERM on risk and trust associated with transnational alliances and the resulting impact on interorganizational information sharing. Survey data is gathered from 200 senior-level managers monitoring transnational alliances. Structural equation modeling is used to test the hypothesized relationships. Results provide strong support for the research model, showing that high ERM is associated with decreased risk, increased trust, and enhanced information sharing. Given the on-going debate over the relationship directionality between trust and risk, we conducted additional sensitivity testing. Competing models focusing on trust as the key control mechanism are tested to assess the strength of our research model. Our risk-oriented research model demonstrates stronger explanatory power than competing models. Overall, our results show ERM substantially alters strategic management of transnational alliances, and has become a major influence on interorganizational risk, trust, and information sharing.

Keywords: enterprise risk management, trust, business risk, transnational alliances, information sharing, supply chain risk management, interorganizational relationships

JEL Classification: m41