Risk Management and Financial Performance of Firms in Nigeria: Firm Size as a Moderator

Abstract

This study examines risk management and financial performance of firms in Nigeria: Using firm size as a moderator, from 2012 to 2019. The population comprises all the quoted financial firms in Nigeria while filtering technique was used to arrive at a sample size of forty-four (44) financial firms in Nigeria. The hypotheses were tested using robust random effect regression model after conducting some diagnostics tests. The results showed that interest rate risk has a significant positive effect on return on asset of quoted financial firms in Nigeria. The results also showed that financial leverage risk with the interaction of firm size has an insignificant statistical effect in explaining the return on assets of quoted financial firms in Nigeria. The study further reveals that interest rate risk without moderation is significant at 1% while the indirect relationship of interest rate risk as moderated by firm size has a positive significant effect on return on assets of quoted financial firms in Nigeria. The study recommends among others, that the management of financial firms in Nigeria should use a high leverage level of ratio 60:40 to enhance their profitability level. The highly levered firms will bring checks and balances to the organisations and resolves some agency problems which in turn enhance their profitability level in Nigeria. Also, the management of financial firms in Nigeria should sustain the management of their interest rate risk by ensuring that the interest rate charge is gauged by the prevailing inflation rate in Nigeria to enhance their profitability level.

This study examines risk management and financial performance of firms in Nigeria: Using firm size as a moderator, from 2012 to 2019. The population comprises all the quoted financial firms in Nigeria while filtering technique was used to arrive at a sample size of forty-four (44) financial firms in Nigeria. The hypotheses were tested using robust random effect regression model after conducting some diagnostics tests. The results showed that interest rate risk has a significant positive effect on return on asset of quoted financial firms in Nigeria. The results also showed that financial leverage risk with the interaction of firm size has an insignificant statistical effect in explaining the return on assets of quoted financial firms in Nigeria. The study further reveals that interest rate risk without moderation is significant at 1% while the indirect relationship of interest rate risk as moderated by firm size has a positive significant effect on return on assets of quoted financial firms in Nigeria. The study recommends among others, that the management of financial firms in Nigeria should use a high leverage level of ratio 60:40 to enhance their profitability level. The highly levered firms will bring checks and balances to the organisations and resolves some agency problems which in turn enhance their profitability level in Nigeria. Also, the management of financial firms in Nigeria should sustain the management of their interest rate risk by ensuring that the interest rate charge is gauged by the prevailing inflation rate in Nigeria to enhance their profitability level.