Moderating Effect of Firm Size on Risk Management and Profitability of Quoted Financial Firms in Nigeria

Abstract

The exposure to risk at both the individual and corporate levels has become a very serious issue for survival in life. Nigeria had for several years been experiencing one form of financial distress or the other. The series of poor performance experienced by financial firms in Nigeria were attributedto inadequate risk management. This study examines the moderating effect of firm size on risk management and profitability of quoted financial firms in Nigeria, 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 liquidity risk has asignificant positive effect on return on asset of quoted financial firms in Nigeria while market risk has an insignificant positive effect on return on asset of quoted financial firms in Nigeria. The study further reveals that market risk without moderation is insignificant positive at all levels of significance whereas the indirect relationship of market risk as moderated by firm size has a significant negative effect on return on assets. This, implies that firm size moderates the relationship between market risk and return on assets of quoted financial firms in Nigeria.The study recommends among others, that the financial firms should manage their liquidity level by striking a balance between excess cash and cash trapping by maintaining the industry standard of 2:1 to enhance their profitability level in Nigeria. Also, the management of financial firms in Nigeria should maintain appropriate market risk by ensuring that they make adequate provisions for foreign exchange to minimise its negative effect on their operations and enhance their profitability level in Nigeria.