Financial Risk Management and Corporate Performance of Selected Small-scale Firms in Nigeria

Abstract

The study examined the influence of financial risk management on corporate performance of selected small-scale firms in Nigeria. The specific objective was to determine the extent to which operational risks and liquidity risks influence the corporate performance of selected small-scale firms in Nigeria. This study adopted a survey research design. The target population for this study consists of managers of small-scale firms in Nigeria. Using snowballing sampling technique, 35 managers of small-scale firms were selected from each of the six geopolitical zones of Nigeria, resulting in a total sample size of 210 respondents. Primary data for this study were collected using a structured questionnaire. The reliability of the instrument was tested using Cronbach’s Alpha, which measures internal consistency. The data collected were first analyzed using frequency analysis to show the distribution of the responses to the research questions. For the inferential aspect, multiple regression analysis was used to test the two hypotheses developed in line with the study’s objectives. It was found that: operational risks have a significant negative influence on the corporate performance of selected small-scale firms in Nigeria (β = -0.272, p = 0.002); liquidity risks have a significant negative influence on the corporate performance of selected small-scale firms in Nigeria (β = -0.225, p = 0.026). In conclusion, financial risk, when left unmitigated, can undermine the core functional and financial structures of small enterprises, leading to inefficiencies, reduced profitability, and in severe cases, business failure. By implication, these outcomes emphasize the importance of structured, proactive financial risk management practices in helping small businesses withstand economic pressures and uncertain market dynamics. The study recommends that small-scale firm owners and managers should invest in enhancing their internal risk management frameworks, including the adoption of regular operational audits and process optimization strategies to identify and mitigate operational inefficiencies.