EFFECT OF FINANCIAL RISK MANAGEMENT ON FINANCIAL PERFORMANCE OF FIRMS LISTED IN THE NAIROBI SECURITIES EXCHANGE
DOI:
https://doi.org/10.47672/ajf.358Keywords:
Financial Risk Management, Financial Performance and Nairobi Securities exchangeAbstract
Purpose: The main purpose of this study was to determine the effect of financial risk management on financial performance of firms listed at the Nairobi Securities exchange.
Methodology: The study employed descriptive design. The target population for the study was all the chief financial officers of all the 61 listed firms at the Nairobi Securities Exchange. The study employed a census survey of the 61 CFO's of the listed firms at the NSE. The study utilized a semi-structured questionnaire to collect primary data. . The collected data was coded into SPSS 23 for subsequent descriptive and inferential statistics. Descriptive statistics was presented through frequencies, percentages, means and standard deviation. The inferential statistics was presented using regression model summary and correlation coefficients. The findings were further presented using charts and tables.
Results: The findings of the research showed there was a positive and significant association between financial risk management strategies as evidenced by the coefficient of determination R2 = .205. The results of the study further indicated that asset structuring management and risk avoidance practices had a positive and significant influence on financial performance. The study concluded that with proper asset structuring management practices a firm can improve its performance on the stock exchange. Further the research findings showed that risk avoidance practices can positively enhance the financial profitability of listed firms.
Unique Contribution to Theory, Policy and Practice: The study recommends that listed firms should enhance their financial risk management practices to be in tandem with growing international standards and globalization. The study also recommends that the regulatory authorities should establish policies laws that take note of the risks that company take and provide them with certain incentives on the bourse.
Downloads
References
Al-Tamimi, H. (2007). The Journal of Risk Finance, , Vol. 8, No.4, pp. 394- 409.
Bansal, P., & Clelland, I. (2004). Talking trash: Legitimacy, impression management, and unsystematic risk in the context of the natural environment. . Academy of Management Journal,, 47(1), 93-103.
Baxter, R., Bedard, J. C., Hoitash, R., & Yezegel, A. (2013). Enterprise risk management program quality: Determinants, value relevance, and the financial crisis. . Contemporary Accounting Research, , 30(4), 1264-1295.
Bell, T. B., Marrs, F. O., Solomon, I., & Thomas, H. (1997). Auditing Organizations Through a Strategic Lens: The KPMG Business Measurement Approach. . KPMG Peat Marwick.
Catherine, A. (2014). The effects of risk management on financial performance of insurance companies in Kenya.
Collier, P. (2007). The bottom billion. ECONOMIC REVIEW-DEDDINGTON-, , 25(1), 17.
Cooper, D., & Schindler, P. (2005). Business Research Methods. New York: : McGraw Hill Irwin.
Cornell, B., & Shapiro, A. C. (1997). Corporate stakeholders and corporate finance. Financial management, , 5-14.
COSO . (2004). Enterprise Risk Management-Integrated Framework Executive Summary. The Committee of Sponsoring Organizations of the Tread way Commission, .
Crawford, M., & Seidel, S. (2013). Weathering the Storm: Building Business Resilience to Climate Change. Business Resilience.
Cupic, M. (2015). Risk Management and Corporate Value. Economic Horizons,, 17(3),215 - 228.
Dimitropoulos, P. E., & Asteriou, D. (2010). The effect of board composition on the informativeness and quality of annual earnings: Empirical evidence from Greece. . Research in International Business and Finance, , 24(2), 190-205.
Enderwick, P. (2006). Managing the New Global Threats. . Business Review. , 63-70.
Everis, M. (2009). Risk Management in the Insurance Business Sector. . United Kindgom.
Fasika, F. (2012). Commercial Bank operational risks management: Exploratory study on selected Ethiopian Commercial Banks. Master's Thesis.
Freeman, R. E. (1994). The politics of stakeholder theory: Some future directions. Business ethics quarterly, , 409-421.
Nderi Charles Njoroge (2013) Strategic risk management practices by AAR Insurance
Hassan, A. (2009). Risk Management Practices of Islamic Banks of Brunei Darussalam. Journal of Risk Finance, , Vol.10, No.1, pp. 23-37.
Holton, G. A. (2004). Defining risk. . Financial Analysts Journal, , 60(6), 19-25.
Hoyt, R. E., & Liebenberg, A. P. (2008). The value of enterprise risk management: Evidence from the US insurance industry. In unpublished paper, accessed at: http://www. aria. org/meetings/2006papers/Hoyt_Liebenberg_ERM_070606. pdf.
Hoyt, R., & Liebenberg, A. (2011). The Value of Enterprise Risk Management. . Journal of Risk and Insurance, , 78(4), 795-822.
Jocye, M., & Willy, M. (2016). Effects of risk management practices on financial performance of non-life insurance firms operating in kisii county, Kenya, . International journal of Social science and project planning management, , 1 (5), 62-74.
Kirogo, F. K., Ngahu, M. S., & Wagoki, M. J. (2014). Effect of Risk-Based Audit on Financial Perfomance: A Survey of Insurance Companies in Nakuru Town, Kenya. Stratford Peer Reviewed Journals and Book Publishing, Volume 1; |Issue 1; Page1-13.
Klimczak, K. M. (2005). Rationales for corporate risk management from stakeholders' perspective.
Kuria, T. W. (2016). The effects of corporate diversification on financial performance of non-financial firms listed at the Nairobi Securities Exchange. Nairobi: University of Nairobi.
Lai, F., & Samad, F. A. (2011). Enterprise Risk Management Framework and The Empirical Determinants of Its Implementation,, , Malaysia, Vol.1, 2011, pp . IACSIT Press, 340 -344.
Leivesley, S. (2006). Terrorism PLC: Funding spectaculars and catastrophic risk in law,. Journal of Money Laundering Control, , 9(2), 141 - 156.
Lesourd, J. B., & Schilizzi, S. (2009). The Environment in Corporate Management: New Directions and Economic Insights. . Cheltenham: : Edward Elgar Publishing.
Levine, R., & Zervos, S. (2009). Stock market development and long-run growth. . The World Bank Economic Review, , 10(2), 323-339.
Lin, Y., Wen, M. M., & Yu, J. (2012). Enterprise risk management: Strategic antecedents, risk integration, and performance. . North American Actuarial Journal, , 16(1), 1-28.
Madiwe, J. (2014). Ownership structure, inside ownership and firm performance. University of Twente.
Magondu, A. M. (2015). Extreme risk and the performance of firms listed in the Nairobi Securities Exchange. Nairobi: University Of Nairobi .
Mbogo, S. (2014). The effect of corporate restructuring on share prices of companies quoted in the Nairobi Securities exchange. Nairobi: School of business University Of Nairobi.
Meulbroek, L. (2002). Integrated Risk Management for the Firm: A Senior Manager's Guide.
Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. . The American economic review, , 48(3), 261-297.
Monda, B., Giorgino, M., & Modolin, I. (2013). Rationale for Corporate Risk Management: A Critical Literature Review. . Department of Management, Economics and Industrial Engineering.
Mossin, J. (1966). Equilibrium in a Capital Asset Market. . Econometrica, 34(4), 768-783.
Mua, J., GangPengb, Douglas, L., & MacLachlan. (2009). Effect of risk management strategy on NPD Performance, . Technovation Paper, , No. 29, 170-180.
Njoroge, R. M. (2013). Relationship between financial literacy and entrepreneurial success in Nairobi County Kenya. . Unpublished MBA Project). University of Nairobi, Nairobi, Kenya.
Nocco, B., & Stulz, R. (2006). Enterprise Risk Management: Theory and Practice. . Journal of Applied Corporate Finance, , 18(4), 8-20.
Obalola, M. A., Ime, T. A., & Abass, O. A. (2014). The Relationship between Enterprise Risk Management (ERM) and Organizational Performance. Research Journal of Finance.
Pakroo, P. H. (2010). The Small Business Start-Up Kit for California. . Berkeley: : Nolo Publishers.
Ross, S., Westerfield, R., Jordan, B., & Mazin, A. (2007). Financial management fundamentals in Malaysia. Malaysia: McGraw-Hill.
Ruefli, T. W., Collins, J. M., & Lacugna, J. R. (1999). Risk measures in strategic management research: auld lang syne?. . Strategic management journal, , 20(2), 167-194.
Sharpe, W. (1964). Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk. . Journal of Finance, , 19(3),425-442.
Shihab, M., & Bubere, F. (2013). Hedging strategies of Swedish mining companies: a qualitative study.
Smeeth, L., Douglas, I., Hall, A. J., Hubbard, R., & Evans, S. (2009). Effect of statins on a wide range of health outcomes: a cohort study validated by comparison with randomized trials. . British journal of clinical pharmacology,, 67(1), 99-109.
Soileau, J. (2010). Influence of audit committee and internal audit function effectiveness on enterprise risk management adoption. . American Accounting Association Annual Meeting and Conference on Teaching and Learning in Accounting.
Sprcic, D. (2013). Corporate Risk Management and Value Creation. . Montenegrin Journal of Economics,, 9(2),17-26.
Talbot, J., & Jakeman, M. (2011). Security Risk Management Body of Knowledge. New York: John Wiley & Sons.
Tseng, C. (2007). Internal Control, Enterprise Risk Management, and Firm Performance . Unpublished PhD Dissertation; Robert H. Smith School of Business.
Waweru, N. M., Munyoki, E., & Uliana, E. (2010). The effects of behavioural factors in investment decision making: a survey of institutional investors operating at the Nairobi Stock Exchange. International Journal of Business and Emerging Markets, , 1(1): 24.
Yilmaz, A. K. (2009). Employee empowerment and differentiation in companies: a literature review and research agenda. . Enterprise Risk Management, , 1(2).
Yuvaraj, & Abate, G. (2013). Performance of insurance companies in Ethiopia, . International Journal of Marketing, Financial Services & Management Research , ISSN.2, (7), 2277- 3622.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2018 Margaret Kibera, Professor Willy Muturi
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution (CC-BY) 4.0 License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
