FINANCIAL RISKS AND PERFORMANCE OF LISTED MANUFACTURING FIRMS IN NIGERIA

Abstract

The recent economic issues in Nigeria have necessitated the identification of elements that contribute to the country's underwhelming performance. However, factors like unstable foreign exchange rate, rising inflation rate and insecurity has been studied at macroeconomic level while little attention has been given to factors like financial risks and how they have an influence on the functioning of manufacturing firms. This study therefore, investigated the effect of financial risks on the performance of manufacturing firms in Nigeria. Data were sourced from the annual financial statements of manufacturing firms that are listed on the Nigerian Stock Exchange for the period 2010 to 2020. Panel regression technique based on fixed effect model was employed to establish the effect of leverage risk, liquidity risk, firm size and age of firm on return on asset. It was discovered that leverage risk, liquidity risk, firm size have adverse and significant effect on return on asset while age of firm has positive and insignificant effect on return on asset. Financial risk of manufacturing sector in Nigeria is on the rise, especially as a result of debt and increase in current liabilities over current assets which are constraints on general performance. It is recommended that manufacturing firms should avoid incurring excessive debt in order to avoid increase the risk of leverage. In addition, effective strategies should be employed to monitor and manage financial risks in order to reduce or eliminate the negative consequences of these risks.