




































 

 

 
67 

© 2021 Conscientia Beam. All Rights Reserved. 

RISK MANAGEMENT AND FINANCIAL PERFORMANCE OF MANUFACTURING 
FIRMS IN NIGERIA   

 

 

Gideon Tayo 
Akinleye1 
Comfort Temidayo 
Olanipekun2+ 

 

1,2Department of Accounting, Ekiti State University, Ado-Ekiti, Nigeria. 
1Email: Gideon.akinleye@eksu.edu.ng Tel: 08036677803 
2Email: Comfort.olanipekun@eksu.edu.ng Tel: 08030414641 

 
(+ Corresponding author) 

 ABSTRACT 
 
Article History 
Received: 8 September 2021 
Revised: 23 November 2021 
Accepted: 13 December 2021 
Published: 28 December 2021 
 

Keywords 
Risk 
Risk management 
Financial performance 
Manufacturing firm  
Risk management cycle 
Liquidity risk 
Market risk. 
 

JEL Classification: 
G32. 

 
The current study investigated risk management and financial performance of 
manufacturing firms. Specifically, the study analyzed liquidity risk and market risk 
effect on after tax profit of manufacturing establishment in Nigeria. The study 
employed panel data over the period spanning from 2010-2019 across 10 firms. 
Secondary data were gathered through the annual reports of the selected firms. 
Correlation analysis and panel-based estimation techniques were used. The outcome 
showed that liquidity risk positively and significantly affect profit after tax while 
market risk (measured by interest rate risk) negatively and insignificantly affect profit 
after tax of sampled firms quoted in Nigeria. This study concluded that efficient and 
effective risk management will positively affect performance of quoted firms in Nigeria, 
most specially management of internal risk such as the liquidity risk. Hence, firms 
should build an internal control system flexible in nature to harness the benefit of 
internal risk management and also normalize the negative effect of external risk such as 
the interest rate on performance.  
 
 

Contribution/Originality:  The primary contribution are findings that liquidity risk positively and significantly 

affect profit after tax while interest rate risk negatively and significantly affect profit after tax of quoted 

manufacturing firms in Nigeria. 

 

1. INTRODUCTION 

Risk management as part of business management function is argued to be an essential element to be 

considered in the contemporary business world. According to Ugwuanyi and Ibe (2012) the method of planning, 

leading, organising and directing the operation of a firm to be able to reduce the outcome of risk on a firm’s 

performance is very essential. Mugenda, Momanyi, and Naibei (2012) also is of the opinion that prioritizing and 

managing risks is becoming increasingly important to a firm has it assist in the ability to adjust to an ever-changing 

and global business environment. Risks are now amplifying as a result of globalisation and it management is 

indispensable to the success of a firm (Ironkwe & Osaat, 2019). A firm cannot function without taking measured 

risks.  Not all risk is bad, some degree of risk must be considered in order to growth or avoid stagnation. In as much 

there is risk, its management will be is required.  

Effective management of risk tend to maximize the benefit of a risky circumstances and minimizing the adverse 

consequence of such risk. A firm is profitable, when the income generated surpass the direct and indirect costs 

expended in generating income. The wealth of a shareholder is maximized when the firm witnessed growth and 

Financial Risk and Management Reviews 
2021 Vol. 7, No. 1, pp. 67-77. 
ISSN(e): 2411-6408 
ISSN(p): 2412-3404 
DOI: 10.18488/journal.89.2021.71.67.77 
© 2021 Conscientia Beam. All Rights Reserved. 

 
 
 

 
 
 

 

 
 
 
 

mailto:Gideon.akinleye@eksu.edu.ng
mailto:Comfort.olanipekun@eksu.edu.ng
https://www.doi.org/10.18488/journal.89.2021.71.67.77


Financial Risk and Management Reviews, 2021, 7(1): 67-77 

 

 
68 

© 2021 Conscientia Beam. All Rights Reserved. 

stability in dividend payment or capital gain arising from increase in the wealth of the firm’s market share, Ajibola, 

Wisdom, and Qudus (2018). Understanding the business risks help in guiding firm assets and reducing avoidable 

costs is very vital in a business. A business risk is a firm’s risk on capital, earnings, incidental losses and also 

operational, financial, strategic and other risks.  

Effective management of risk can be regarded as one means of providing assurance of a sound investment to 

stakeholders. Risk management major purpose is the evading of a significant surprise or a result that the firm did 

not project either good or bad. Organization is able to achieve its financial targets through risk management. 

Effective management of risk intermittently evaluate and identifies risks and bringing down trauma that can affect 

the firms. Coleman (2006) emphasized that the ability to excellently manage risk is the only and most important 

feature separating manufacturing firm that are feasible, productive and viable in the long run from firms that are 

not feasible. An efficient risk management scheme, which includes but not limited to risk monitoring, education on 

cyber security programs, internal audit can as well help the firm to recognize and prepare by using analytics to 

ascertain violation patterns and investigating cyber-controls in a rhythmic flow (Miller, Huelsman, Clark, & 

Sokolovic, 2015). 

Risk management should follow risk management cycle, in risk management procedure, one must master the 

strategic objectives then keep up with the present situation of the organization, this will help in identifying inherent 

risk of the organisation. Afterward, risk assessment which comprises of risk analysis and evaluation is carried out 

followed by risk reporting (threat and opportunity), decision, risk treatment, residual risk reporting and monitoring 

(Farrah, 2011) Organizations are to be proactive in managing risk, monitor continually and consciously in a way it 

relates with the firm strategic objectives. The management of risk is a requisite fragment of the business, it tends to 

boost the chances of accomplishment and likewise lessen losses possibility and chances of not attaining the overall 

organisation goal (Alarm, 2002). 

Manufacturing firm is essential in achieving new invention, processes, and technologies (Coleman, 2006). 

Manufacturing firms have been involved in risk management earlier than the industrial revolution each era this has 

brought new threat and opportunities (Miller et al., 2015). Financial risk can cripple manufacturing company ability 

to realise enough returns to its shareholders. To check against financial risk in an organization, the management 

must understudy and be aware of his area of susceptibleness. A number of studies have assessed the effects of risk 

management on financial risk of manufacturing firms in Nigeria. Most of these studies focused largely on the 

banking sector of the economy. For instance, Adeusi, Akeke, Adebisi, and Oladunjoye (2013); Yahaya, Lamidi, 

Kutigi, and Ahmed (2015) assessed the correlation between risk management Practices and bank financial 

performance in Nigeria, in addition majority of the studies does not incorporate the uniqueness across sampled 

firms in their analysis, as most of the study do not fully explore panel data analysis. Hence, this study is to analyze 

the effect of risk management on financial performance of manufacturing companies in Nigeria. Precisely, the study 

is to analyzed the:  

(i) Impact of liquidity risk on profitability of manufacturing firms in Nigeria.  

(ii) Impact of market risk on profitability of manufacturing firms in Nigeria. 

 

2. LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT 

2.1. Conceptual Review 

2.1.1. Risk Management 

Gallati (2003) defines risk as a situation whereby an organization is liable to disaster, or a situation where 

chances of divergence from a desired result is high. Acerbi (2008) describes risk as anticipation for danger, 

negatively unexpected predicament to occur. It can also be referred to as negative digression from the plan. In 

relation to business, risk is the chance that a situation either predictable or not may lead to unsuitable overall effect 

on the objectives of the organisation.  Risk management involve embracing an efficient and dependable method in 



Financial Risk and Management Reviews, 2021, 7(1): 67-77 

 

 
69 

© 2021 Conscientia Beam. All Rights Reserved. 

managing organization risk. Res, Sa, and Gemechu (2016) are of the opinion that risk management consists of 

several steps, that allow for constant progressive decision by pinpointing, communicating, tracking risks and 

investigating variance in an organization. Stanton (2012) suggests a comprehensive method like identifying threats, 

unequivocal examination of possible action either to eradicate, accept or alleviate the identified danger. 

Management of risk call for a process of organizing business activities in such a way that gives positive result 

while guiding against the unfavourable and unexpected suitation that could hinder the desirable result. Mugenda et 

al. (2012) explained that risk management focus on optimum risk tradeoff and organisation perpetually seek type of 

risk to be reduced or increased and measures to curtail such. As stated by Njogo (2012), management of risk 

involves identifing, measuring, ranking and managing available resources to reduce and check the effect of such 

unfavourably situation (Njogo, 2012). Risk management is the ability to foresee risks and embark on proactive 

measure to mitigate against business main objective working toward returns maximation and costs reduction 

(Madembu, Namusonge, & Sakwa, 2015).  

Risk management includes activities that business carried out which aims at minimizing or eliminating all 

categories of risks (Ezeosa, 2011). Kassi, Rathnayake, and Edjoukou (2019) and Erin, Emoarehi, Jonah, and Ame 

(2017) identifies liquidity risk, market risk, reputational risk, credit risk, strategic and operational risk as common 

risk to all businesses.  

 

2.1.1.1. Liquidity Risk  

It involves anticipation of negative influence on the interests of shareholders, customers and other stakeholders 

of an organisation arising from the inability to fulfill current cash obligations in a timely and cost-efficient way 

(Muriithi, 2016). This is the inability of the organisation to meet it financial obligation due to insufficient revolving 

cash. According to Yousfi (2014), the likelihood that the firm’s will be helpless in fulfilling its duty as well as 

inability to reinvest on assets at maturity and still avoiding undesirable expenses is called liquidity risk.  

 

2.1.1.2. Market Risk 

It is the prospect which a firm experiences loss due to adverse global price movement in the financial markets. 

Market risk is a vital part of financial risk since it is systematic in nature which cannot be discount by 

diversification of investment but can be abated using suitable hedging tactics (Kassi et al., 2019). Koch and 

MacDonald (2006) is of the opinion that risk includes variables associated with financial market like risk on interest 

rate, risk on foreign exchange and risk on stock price. It is an adverse change due to uncertainty in the economy.  

 

2.1.2. Risk Management Cycle 

The risk management cycle also called continuous risk management procedure involves the presentation of risk 

management process in a continuous manner. Antonio and Barbara (2013) defined risk management process as a 

concept of identifying, treating and then managing risk. This is an ongoing process and actions needed to be taken 

to reduce adverse effect of risk on an organization (Farrah, 2011). Van Staveren (2009) and Farrah (2011) listed five 

stages of managing risk: defining the objectives; recognizing the risks; appraising the risks; bearing in mind 

replacements and choosing means of treating the risk; executing and revising stage. There are still other common 

views on the risk management cycle that explained it identification, evaluation, ranking, treatment and monitoring  

(Antonio & Barbara, 2013).  

Figure 1 below explained the risk management cycle from the risk identification, risk evaluation, risk ranging, 

risk treatment and monitoring. 

 



Financial Risk and Management Reviews, 2021, 7(1): 67-77 

 

 
70 

© 2021 Conscientia Beam. All Rights Reserved. 

 
Figure-1. Risk Management Cycle, Designed by the Authors. 

 

2.1.2.1. Risk Identification 

This involves identifying the threats and uncertainties associated with organization objective. It entails 

cataloging likely risks by using breakdown structure, arranging them with the details and entered into a project 

risk log or risk register. With this, it is easier the related team to recognize and measure potential threat to the 

organization. 

 

2.1.2.2. Risk Evaluation 

This is the estimation of possibility and consequences of each risk to figure out the area of utmost need. Factors 

such as time lost, decrease in returns, image loss and stringency of influence are all importantly considered in risk 

evaluation. Risk can be classified into high and low risk. As identified base on their effect those that placed 

organization on standstill and those with minor effect. Also, this step includes the outline of risk to documents, 

policies, procedures and business procedures. This help to discover shared problem across board and restrategise for 

a better future management purpose. 

 

2.1.2.3. Risk Ranking 

This involves arranging the analyzed risk by weighting both the possibility of its manifestation and the 

potential consequence on the organization. This means that the risk with highest probability and potential effect 

takes the most priorities while the risk with the lowest likelihood and potential effect takes the least priority. As 

such, the process helps in determine where the areas to be focused by the team. Also, it allows organization to have 

a general view of the risk exposure of the whole organization 

 

2.1.2.4. Risk Treatment  

This involves exploring the team wealth efficiently in either unravelling or at least mitigating the risk.  It 

requires discovery the desirable means, like “men and money”, and essential leverage needed by the organisation. 

Information dissemination and training should not be left out. Also, meetings instituted that everyone can discuss 

regarding risk and the solution proffers. 

 

2.1.2.5. Risk Monitoring 

At this stage, the proposal must have been established it functionality and effectiveness. Notable fluxes or 

revision required must have been recognised. Under the manual system, monitoring happens through industrious 



Financial Risk and Management Reviews, 2021, 7(1): 67-77 

 

 
71 

© 2021 Conscientia Beam. All Rights Reserved. 

worker who keep close watch on total risk components. But, in a computerized environment, whole risk framework 

is being watched by the digitalised system. Any change is immediately noticeable to all. Therefore, the team may 

need to work over or sometimes a new process may be needed if the implemented tactic is not effective.  

 

2.1.3. Financial Performance 

Performance entails the capability of an organisation to increase and manage its funds in diverse positive ways 

so as to develop competitive advantages (Iswatia & Anshoria, 2007). Firm performance can also be described as how 

healthy an organization can apply its assets in other to generate revenue (Samina & Ayub, 2013). It defines the 

technique that firms’ resources, man, material, machine and money are utilized in other to maximizing organization 

objectives. Sometimes, performance and profit are used interchangeably, but there is clear difference between them. 

While profit is the overall revenue earned by an organization, performance refers to the capability of the 

organization to realize return on all the resources employed in business. Firm’s performance is a concept that 

explains the proficiency of an organisation to be profitable in its dealing. It measures level of efficiency of a firm by 

using the available fund to achieve the projected profit goal.   

 

2.1.4. Risk management and Performance 

A poor firm performance results from inability of organisation to reduce, regulate, and evaluate risk. 

Practically, a good risk management capability will enhance performance, regular it valuations, and change in 

customers assumption, Muneer (2020). Risk management enabled business organisation to recognize, overview and 

control the exposures to risk from diverse area in other to enhance firm performance. Risk management also 

maximizes the organization value and guarantee that the benefits surpass the costs. The performance of the firm is 

strengthened by Risk management strengthen performance by reducing in unforeseen cost and positive 

development in risk culture of the organization (Teece, Peteraf, & Leih, 2016).  

Studies available on risk management and performance showed different opinions on the effect of firm 

performance on risk management. For instance, Ugwuanyi and Ibe (2012) assessed enterprise risk management and 

performance of Nigeria’s brewery industry using primary data analyzed with simple percentages and z-statistics 

and found that 93% of  respondent strongly agreed or agreed that business risk management could effectively 

enhance the operations of firms  in Nigeria. Muneer (2020) also investigated enterprise risk management and 

performance of Pakistan manufacturing firms using primary data and concluded that organizations become 

enterprise risk management enhances organizational skill on operational and strategic decision making which as 

well increase performance. Other studies that found positive impact of risk management on performance among 

others include Mugenda et al. (2012); Yahaya et al. (2015); Madembu et al. (2015) and Soliman and Adam (2017). 

 

2.2. Theoretical Review 

2.2.1. Liquidity Asset Theory 

Santomero (1984) viewed states liquidity risk theory as the theory that express risk arising from a firm having 

inability to convert asset to cash to meet it present obligation or demand as they fall due. Liquidity was also 

considered a financing crises risk. The credit in this situation means the possibility of  lack of  funding caused by 

inevitably situations or unexpected occurrence, such as huge charges off, hopelessness sell-off  or currency crises. 

This theory explains that liquidity risk as a crisis arising due to funding problem. 

 

2.3. Empirical Review 

Olaniran, Namusonge, and Muturi (2016) analyzed role of risk-taking on performance of firms on Nigerian 

stock exchange. 60 sampled firms listed in Nigerian data were analysed using regression models including the 

Hausman specification test. The study showed a negative relationship between risk-taking and returns on assets 



Financial Risk and Management Reviews, 2021, 7(1): 67-77 

 

 
72 

© 2021 Conscientia Beam. All Rights Reserved. 

likewise on risk-taking and returns on equity. Therefore, it was concluded that, Nigeria, risk-taking has widely 

implemented and used by entrepreneurial orientation dimension, but has not yet affect ROA and ROE positively. 

Muneer (2020) investigated enterprise risk management and performance of Pakistan manufacturing firms. 

Primary data collected through questionnaire from 335 respondents was employed. The study then analyzed data 

using SEM-PLS. The study revealed a positive correlation between risk culture, innovativeness, and risk 

management information system and firm performance. Therefore, it was concluded that EMR has enhanced 

organizations operational and strategic decision making likewise performance by reduction of contingency losses.  

Mugenda et al. (2012) assessed risk management practices and it effect on financial performance of sugar 

manufacturing enterprises in Kenya. Specifically, the causal link between risk management and financial 

performance adopted by sugar producing firms were assessed. Primary data collected was analyzed using Pearson 

correlation coefficient and analysis of variance. The result showed a significant variation in risk management 

practices within. Also, the study revealed above an average positive link om risk management practices and 

performance. Yahaya et al. (2015) evaluated the correlation between financial performance and risk management. 

The study particularly investigated the effect of business risk, firm risk, leverage, liquidity and firm size and age on 

return on asset and return on equity. The study employed panel data on 15 listed banks extracted for the period 

2005-2014. The study analyzed data using regression analysis. The study revealed that the bank risk management 

mechanisms and liquidity policies positively affect organizational performance.  A negative connection between 

bank financial leverage, size, age and financial performance was also shown. Therefore, it was concluded that risk 

and liquidity management policies are important for high financial performance. 

Onuora and Ifeacho (2017) checked credit management effects on profitability of manufacturing firm in Nigeria. 

Impact of credit management mechanism: credit policy, liquidity management and debtors’ turnover on return on 

asset was assessed. The study utilized five manufacturing firms’ data from 2010 to 2014. Regression analysis was 

used in analysing the study. Result showed negatively significant correlation between credit policy and liquidity 

management and profitability proxy by Return on Assets also debtors’ turnover has a significant and positive effect 

on Return on Assets. 

Madembu et al. (2015) assessed role of risk management on financial performance of small and medium 

enterprises in Kenya. Particularly, impact of financial risk management, strategic risk management and operational 

risk management were investigated on financial performance of SMEs in Kenya. Secondary data collected from 

financial reports of 100 SMES were analysed using discursive method. The study then showed that SME risk 

management practices has effect on financial performance.  Soliman and Adam (2017) investigated enterprise risk 

management and firm performance. The study measured performance model by the Return on Average Equity 

(ROAE), Share Price Return (SPR) and Firm Value (FV). The study employed secondary data on ten listed 

companies and regression analysis was employed to analyse data.A positively strong link between Enterprise Risk 

Management implementation and performance in the sector was discovered. Therefore, study concluded that firms 

that take on enterprise risk management achieve more than firms that have not taken it on. Ajibola et al. (2018) 

examined risk management and financial performance of deposit money banks in Nigeria. The study specifically 

investigated the impact of risk management (credit and liquidity) on financial performance of money deposit banks 

in Nigeria. The study employed panel data for 10 deposit money banks within Nigeria. The study analyzed data 

using panel regression. The study revealed a positive relationship exist between risk and financial performance of 

money deposit banks and risk management. Olalekan, Mustapha, Irom, and Emily (2018) evaluated corporate board 

size, risk management and financial performance of listed money banks in Nigeria. The study particularly examined 

effect of corporate board size, risk management on ROE and EPS of listed deposit money banks in Nigeria. 

Fourteen money bank data extracted over the period 2011-2016 was employed. The study analyzed data using 

panel regression. The study showed that variables significantly but negatively affect ROE and EPS respectively. 

Furthermore, it also revealed a negative but insignificant effect of ROE and EPS on liquidity risk in Nigeria banks. 



Financial Risk and Management Reviews, 2021, 7(1): 67-77 

 

 
73 

© 2021 Conscientia Beam. All Rights Reserved. 

Efuntade and Akinola (2020) checked firm attributes and financial performance in listed manufacturing 

organisations in Nigeria. The study adopted data collated over the period 2005-2018. The study analyzed data 

using panel regression analysis. The study showed that Firm Size, Firm Age, Liquidity, Sales Growth and Leverage 

strongly  and collectively have effect on  return on asset of manufacturing firms in Nigeria. Therefore, the study 

concluded characteristics of firm related significantly with the return on asset. Erin et al. (2017) evaluated 

enterprise risk management and financial performance in the Nigerian financial sector. Forty companies’ data 

between 2012 to 2016 were adopted. The study analyzed data using regression analysis. It was found that value at 

risk, board size, firm size and institutional ownership have positive effect on performance while leverage negatively 

affect performance.  

Ironkwe and Osaat (2019) investigated risk asset management and financial performance of insurance 

companies in Nigeria. The study employed secondary data collated between 1986-2016. Johansen co-integration 

and error correction model were used to analysed data. The study showed in both short and long run ROE, ROA 

and leverage risk are all imperative factors in determining risk asset management in Nigeria  

 

3. DATA AND METHODS 

Ugah (2020) model was adopted for this study to assesses financial risk management and the profitability of 

firms. The study specified return on asset (ROA) as a function of liquidity risk (LQR), Credit risk, interest rate risk 

(INTR) and inflation rate risk (INFR) as presented in Equation 1. 

                                     (1) 

Where y represents profitability measured in terms of return on asset, while X is a vector of risk management 

variables such as liquidity risk, credit risk, interest rate risk and inflation rate risk. 

Given the focus of this study on the manufacturing firms the model specified in Equation 1 was modified by 

replacing return on asset with profitability in view of tracking the financial performance of the operation of the 

selected firms, while risk management variables captured as liquidity risk and interest rate risk (INTR) (replacing 

market risk), while firms size was included in the model as a control variable. hence model estimated for the study is 

presented in Equation 2. 

                 (2) 

Where PAT stands for profit after tax, LQR is liquidity risk INTR is interest rate risk and FZ is firm’s size 

 

3.1. Scope, Sources of Data and Method of Analysis 

This captured quoted manufacturing firms in Nigeria stock exchange. Ten (10) manufacturing firms were 

purposively selected and data were collected from their annual reports between 2010 to 2019. Panel-based 

estimation techniques such as pooled OLS, fixed effect estimator, random effect estimator and evaluation for the 

most consistent estimator was done via restricted f-test and Hausman test to analysed data. While other post 

estimation test such as panel homoscedasticity test, autocorrelation test and cross-sectional dependence test were 

conducted to ascertain the fitness of the estimated model 

 
Table-1. Correlation Matrix. 

 PAT LQR INTR FZ 

PAT 1.00000    

LQR -0.5484 1.00000   
INTR 0.0178 -0.1657 1.00000  

FZ 0.7376 -0.4743 0.1522 1.00000 
 

 



Financial Risk and Management Reviews, 2021, 7(1): 67-77 

 

 
74 

© 2021 Conscientia Beam. All Rights Reserved. 

4. DATA ANALYSIS AND DISCUSSIONS OF FINDINGS 

4.1. Correlation Analysis 

Table 1 showed that there is positive correlation between interest rate risk and profit after tax but a negative 

correlation between liquidity risk and profit after tax of quoted firms selected in the study. The implication of this is 

that risk management has positive correlation with performance through the interest rate but negative correlation 

in terms of liquidity risk. In terms of magnitude, the result showed that the correlation between interest rate and 

profit after tax is weak, reflecting a weak level of movement of risk management and profit after tax of quoted firms. 

On the other hand, the result showed that correlation between liquidity risk and profit after tax, reflecting a strong 

level of movement of risk management and profit after tax of quoted firms selected in the study. 

 

Table-2. Estimation result. 

Coefficient Pooled Prob Fixed Prob Random Prob 

C -52.82031 0.065 -50.99452 0.002 -55.3316 0.001 
LQR -7.072336 0.000 3.200952 0.005 3.124137 0.006 
INTR -2.842544 0.062 -.0820459 0.887 -.399781 0.501 
FZ 6.594997 0.000 2.874586 0.004 3.787349 0.000 
 R-square=0.6094 

Adj R-square=0.5972 
F-statistics=49.92 
Prob(F-stat)= 0.0000   

R-square=0.9608 
Adj R-square=0.9554 
F-statistics= 177.54 
Prob(F-stat)= 0.0000   

R-square=0.5903 
Wald chi2(5)= 17.5   
Prob> chi2 =0.000 
 

 Restricted F-test= (p=  < 0.05) 
 Hauman Test =12.41 (P= 0.0061 < 0.05) 

Note: * connote significance at 5% level of significance.  

 

Table 2 revealed estimations result of pooled OLS, fixed effect and random effect techniques, alongside 

restricted F-test and the Hausman test. In terms of reliability and proficiency it was established that of all the 

models used the most reliable and proficient is the fixed effect estimation, as such discussion shall be centered on the 

fixed effect estimation. As reported in Table 2, risk management in terms of liquidity risk positively and 

significantly affect performance of selected firms measured in terms of profit after tax. This result implies that one 

naira increases in current asset relative to current liability (or a naira decrease in current liability relative to current 

asset) will lead to about 3.20billion naira increase in profit after tax of quoted firms selected in the study. 

Furthermore, result presented showed that risk management in terms of interest rate has negative effect on 

performance in terms of profit after tax, a unit percent rise in interest rate will result to about 0.08billion increases 

in performance of quoted firms selected. Table 2 also presented R-square result of 0.6094, reflecting that about 61% 

systematic variation in the performance of selected quoted firms clarified by risk management variables considering 

firm size, therefore, confirming the fitness of the model. 

 

Table-3. Post Estimation Test. 

Wald test 

Null hypothesis Statistics Probability 

Panel homoscedasticity  1.2731 0.2633 
Pesaran test 
Null hypothesis Statistics Probability 
 No cross sectional dependence   0.288 0.7731 
Wooldridge test  
Null hypothesis Statistics Probability 
 No AR(1)panel autocorrelation  1.5840 0.2399 

 

 

Table 3 result revealed that there is enough indication to reject null hypothesis on panel homoscedasticity, null 

hypothesis of no cross-sectional dependence and null hypothesis of no AR (1) panel autocorrelation, due to the 

statistics of 0.2633 > 0.5 for Wald test, 0.7731 > 0.5 for Pesaran test and 0.2399 > 0.5 for Wooldridge test. 



Financial Risk and Management Reviews, 2021, 7(1): 67-77 

 

 
75 

© 2021 Conscientia Beam. All Rights Reserved. 

Therefore, it can be exerted that expectations of equal variance of residual terms, cross sectional independence and 

nonappearance of serial autocorrelation for the predictable panel-based model is valid. 

 

4.2. Discussion of Findings 

The result showed that liquidity risk exerts positively significant effect on the performance of quoted firms in 

the study sampled measured in relations to profit after tax. This reflects that increase in a unit increase in liquidity 

risk will lead to about 3.20billion increase in profit after tax as measure of performance. The study was in 

agreement with the conclusion of Ajibola et al. (2018). Most of these firms have access to more current asset 

relative to current liabilities which make them avoid the risk of insolvency and encourage operational efficiency. 

The higher proportion of current asset relative to current liabilities especially through the cash and bank balances 

help these firms to have access to sufficient income required in the daily running of the business. the study showed 

that interest rate risk has negative effect on the performance of selected firms measured in terms of profit after tax. 

This showed that a percent rise in interest rate will lead to about 0.08 billion naira decrease in profit after tax in 

essence the result reflects that volatility in interest rate will dampen the prospect of increase level of profitability of 

manufacturing firms in the country, other things held constant. 

 

5. CONCLUSION AND RECOMMENDATIONS 

Risk management measures utilized in the study liquidity risk and interest rate risk have positive and negative 

effect on profit tax as measure of performance of the sampled quoted firms, but the effect of interest rate was found 

to be insignificant. While the liquidity can be directly influenced by the firm based on certain decisions, the interest 

rate can only be leveraged as it is autonomous to the firm. Therefore, this study concludes that efficient and 

effective risk management will positively and significantly affect performance of firms through effective and efficient 

management of liquidity in the quoted firms. Thus, this study recommends that manufacturing firms should device 

proper risk management structure that favours higher current asset. Also firms should build an internal control 

system flexible in nature to harness the benefit of internal risk management and also normalize the negative effect 

of external risk such as the interest rate on performance.  

 

Funding: This study received no specific financial support.    
Competing Interests: The authors declare that they have no competing interests.  
Acknowledgement: Both authors contributed equally to the conception and design of the 
study. 

 

REFERENCES 

 Acerbi, C. (2008). Pillar II in the new basel accord: The challenge of economic capital, chapter 9: Portfolio Theory in Illiquid Markets. 

London Risk Books. 

Adeusi, S. O., Akeke, N. I., Adebisi, O. S., & Oladunjoye, O. (2013). Risk management and financial performance of banks in 

Nigeria. European Journal of Business and Management, 6(31), 336- 341. 

Ajibola, A., Wisdom, O., & Qudus, O. (2018). Capital structure and financial performance of listed manufacturing firms in 

Nigeria. Journal of Research in International Business and Management, 5(1), 81-89. Available at: 

https://doi.org/10.14303/jribm.2018.018. 

Alarm. (2002). A risk management standard. UK: The Public Risk Management Association. AIRMIC, ALARM, IRM. 

Antonio, B., & Barbara, G. (2013). Risk management: How to assess, transfer and communicate critical risks. New York Dordrecht 

London: Springer Milan Heidelberg. 

Coleman, S. (2006). Capital structure in small manufacturing firms: Evidence from the data. Journal of Entrepreneurial Finance, 

JEF, 11(3), 105-122. 



Financial Risk and Management Reviews, 2021, 7(1): 67-77 

 

 
76 

© 2021 Conscientia Beam. All Rights Reserved. 

Efuntade, A. O., & Akinola, A. O. (2020). Firm characteristics and financial performance in quoted manufacturing companies in 

Nigeria. International Journal of Business and Finance Management Research, 8(4), 26-32. 

Erin, O., Emoarehi, E., Jonah, A., & Ame, J. (2017). Enterprise risk management and financial performance: Evidence from 

emerging market. International Journal of Management, Accounting and Economics, 4(9), 937-952. 

Ezeosa, D. (2011). The strategic implications of enterprise risk management: A framework. ERM symposium. United Kingdom: 

Coventry University. 

Farrah, M. M. (2011). Assessing risk for strategy formulation in steel industry through real option analysis. Procedia-Social and 

Behavioral Sciences, 24, 991-1002. Available at: https://doi.org/10.1016/j.sbspro.2011.09.080. 

Gallati, R. (2003). Risk management and capital adequacy. New York: McGraw-Hill. 

Ironkwe, U. I., & Osaat, A. S. (2019). Risk asset management and financial performance of insurance companies in Nigeria. 

International Journal of Advanced Academic Research/Accounting Practice, 5(4), 18-46. 

Iswatia, S., & Anshoria, M. (2007). The influence of intellectual capital to financial performance at insurance companies in Jakarta Stock 

Exchange (JSE). Paper presented at the Proceedings of the 13th Asia Pacific Management Conference. Melbourne, 

Australia. 

Kassi, D. F., Rathnayake, D. N., & Edjoukou, A. J. (2019). Market risk and financial performance of non-financial companies 

listed on the Moroccan stock exchange. China, Not Peer Review. Retrieved fom: 

https://www.preprints.org/manuscript/201901.0167/v1. 

Koch, T. W., & MacDonald, S. S. (2006). Bank management (pp. 562). United States of America: R. R. Donnelley & Sons 

Company. 

Madembu, A. W., Namusonge, G., & Sakwa, G. N. (2015). The role of risk management on financial performance of small and 

medium enterprises in Kenya. International Journal of Science and Research, 6(1), 2125-2130. 

Miller, L., Huelsman, T., Clark, B., & Sokolovic, T. (2015). Understanding risk assessment practices at manufacturing 

companies. A collaboration between Deloitte and MAPI. Retrieved from: 

https://www2.deloitte.com/content/dam/Deloitte/us/Documents/manufacturing/us-mfg-mapi-riskassessment-

paper-single-page-040715.pd. 

Mugenda, N. G., Momanyi, G., & Naibei, K. I. (2012). Implications of risk management practices on financial performance of 

sugar manufacturing firms in Kenya. AFRREV IJAH: An International Journal of Arts and Humanities, 1(1), 14-29. 

Muneer, S. (2020). Enterprise risk management and performance of Pakistan manufacturing firms: does the equity ownership 

matter. International Transaction Journal of Engineering Management, and Applied Sciences and Technologies, 11(8), 1-13. 

Muriithi, J. G. (2016). Effect of financial risk on financial performance of commercial banks. Kenya Doctoral Dissertation, Cohred.    

Njogo, B. O. (2012). Risk management in the Nigerian banking industry. Kuwait Chapter of the Arabian Journal of Business and 

Management Review, 1(10), 1-12. 

Olalekan, L. I., Mustapha, L. O., Irom, I. M., & Emily, B. N. (2018). Corporate board size, risk management and financial 

performance of Listed Deposit Money Banks in Nigeria. European Journal of Accounting, Auditing and Finance, 6(1), 1-20. 

Olaniran, O., Namusonge, G. S., & Muturi, W. (2016). The role of risk-taking on performance of firms on Nigerian stock 

exchange. International Journal of Research in Business Studies and Management, 3(3), 36-44. 

Onuora, J. K., & Ifeacho, S. N. (2017). The effects of credit management on profitability of manufacturing firms in Nigeria. A 

study of selected companies in Nigeria in stock exchange. Research Journal of Finance and Accounting, 8(4), 142-154. 

Res, I. J. A., Sa, K., & Gemechu, D. (2016). Risk management techniques and financial performance of insurance companies. 

International Journal of Accounting Research, 4(1), 1–5. 

Samina, R., & Ayub, M. (2013). The impact of bank specific and macroeconomic indicators on the profitability of commercial 

banks. The Romanian Economic Journal, 16(47), 91-110. 

Santomero, A. (1984). Modeling the banking firm. Journal of Money, Credit, and Banking, 16(4), 576-602. 

Soliman, A., & Adam, M. (2017). Enterprise risk management and firm performance: An integrated model for the banking sector. 

Banks and Bank Systems, 12(2), 116-123. 

http://www.preprints.org/manuscript/201901.0167/v1


Financial Risk and Management Reviews, 2021, 7(1): 67-77 

 

 
77 

© 2021 Conscientia Beam. All Rights Reserved. 

Stanton, T. H. (2012). Why some firms thrive while others fail: governance and management lessons from the crisis. New York: Oxford 

University Press. 

Teece, D., Peteraf, M., & Leih, S. (2016). Dynamic capabilities and organizational agility: Risk, uncertainty, and strategy in the 

innovation economy. California Management Review, 58(4), 13-35. 

Ugah, J. (2020). Financial risks management and bank profitability in Nigeria. International Journal of Research and Innovation in 

Social Science, 4(9), 184-190  

Ugwuanyi, U. B., & Ibe, I. G. (2012). Enterprise risk management and performance of Nigeria’s brewery industry. Developing 

Country Studies, 2(10), 60-67. 

Van Staveren, M. (2009). Risk innovation and change. Design Propostions for Implenting Risk Management in Organisation. PhD 

Thesis. University of Twente, Enschede.    

Yahaya, O. A., Lamidi, Y. S., Kutigi, U. M., & Ahmed, M. (2015). The correlation between risk management and organizational 

performance: An empirical investigation using panel data. Research Journal of Finance and Accounting, 6(16), 136-147. 

Yousfi, I. (2014). Risk management practices and financial performance in Jordan: Empirical evidence from Islamic Banks. 

International Shari’ah Research Academy for Islamic Finance, 6(5), 1–24. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Views and opinions expressed in this article are the views and opinions of the author(s), Financial Risk and Management Reviews shall not be responsible or 
answerable for any loss, damage or liability etc. caused in relation to/arising out of the use of the content. 

 


