CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Every company's fundamental objective is to make a profit and perform efficiently in its operations (Otekunrin et al., 2021). Despite the uncertain or unfriendly business environment, an entity's adequate and consistent profit-making will enable it to create satisfactory returns to its stakeholders, particularly shareholders, creditors, and employees. Risks, however, threaten the goal. The recent economic crisis caused by COVID19 has given risk management a new focus that has received the required attention among top executives and practitioners in organizations worldwide. Effective risk management can enhance the performance of firms irrespective of their sectors or industries. It can bring about superior financial performance, a better basis for strategy setting, improved service delivery, better competitive advantage, economical use of time and other resources, and minimum surprises. Effective risk management continuously assesses and identifies risks and reduces surprises that affect the organization (Mohammed & Knapkova, 2016). In times of uncertainty, a worldwide economic crisis and a global pandemic, the function of risk management as a platform for business management is becoming more fundamental. Recently, there has been a growing interest in risk management practice worldwide due to many parallel events (Iwediet al., 2020). Global concerns about risk management are increasing, as noted from discussions on economic, political, technological, and other issues. It is now a major concern for all stakeholders. According to ISO (2020), managing risk is part of all activities associated with an organization and includes interaction with stakeholders. The attitude of management and owners of non-financial companies to risk management leaves much concern. It would be intriguing to know how risk management could help improve the concerned entities' performance. Risk management practices in non-financial companies depend on the types of risks in the environment. Management of risk can have either positive or negative effects on an entity's performance. Non-financial companies in Nigeria are exposed to various risks such as market risk, credit risk, liquidity risk, political risk, technological risk, legal risk, compliance risk, security risk, reputational risk, fraud and pandemic risk. Insurance was the only or primary way of managing risks by the non-financial industries in the twentieth century, but the practice has changed due to the following reasons:

1. Insurance cannot cover all risks. Hazards that cannot be covered by insurance include reputational, regulatory, political, and pandemic risk.

2. The associated costs, including premium payables on insurance, have become so significant in the companies' overheads, and Managers cannot ignore the effects of such costs on the companies' profitability.

3. Disagreements often arise between the insurers and insured on payment of claims.

4. The companies' assets require more safeguards than in previous years.

The companies may not be compensated in good time by the insurers, and this may affect their continued operations. However, managers or directors of nonfinancial companies must acknowledge that insurance is still one of the options available to minimise risks in Nigeria and the world. Risk management practices are the different practices put in place to identify, assess, plan and control social, economic, and physical threats to organisations. It involves risk-avoiding as well as risk-taking. There are various practices aimed at managing risks by the companies in Nigeria, particularly in the Companies and Allied Matters Act and Code of Corporate Governance. These various practices are implementation of enterprise risk management (ERM), the existence of a risk management committee (RMC), the appointment of a chief risk officer, the existence of statutory audit committee, the size of the board, the existence of independent director, higher proportion or ratio of non-executive directors to the total board members, financial expertise of the directors, adoption of a whistleblower policy, and the presence of internal audit function. There have been various studies to investigate the effect of these different risk management practices. They include that ofIlaboya & Obaretin (2015) andAi Ping et al. (2017). A firm's performance has attracted much attention due to its effect on its going concern. Performance, in its real sense, has attracted debates because it is defined and measured differently. The performance of firms could be financial performance and market performance. Financial performance refers to the firm's achievement towards achieving profitability and includes Return on Assets (ROA) and Return on Equity (ROE). On the other hand, market performance refers to investors' perception of a firm's success, mainly through its stock price or market value. It is measured by several proxies such as Tobin's Q, Price to Book Value (PBV), Market to Book Value (MBV), and stock returns(Fujianti, 2018). Regarding this study, the focus is on Return on Assets (ROA), Return on Equity (ROE) and Tobin's Q. They are significant performance measurement variables commonly used for similar studies and by financial analysts who advise their clients or investors from time to time.

1.2 STATEMENT OF THE PROBLEM

A company has no business in the Nigerian Exchange Limited if it cannot create wealth for its shareholders and sustain other stakeholders' interests. However, in their study, Odusanya et al. (2018) found that firms' performance in Nigeria, including non-financial firms, is low and not encouraging. Organisations embrace risk management to enable their management and stakeholders to identify the various risks exposed to and take appropriate steps or measures to manage and control them. However, it is costly and takes considerable effort to enforce all the identified risk management practices. Furthermore, most previous researchers on risk management in and outside Nigeria focused more on the financial sector because it is more sensitive than non-financial. Hence, less emphasis was given to the nonfinancial sectors; thus, this could threaten their growth and development in the long run. Therefore, it is essential to ascertain the impact of risk management on non-financial listed companies in Nigeria. The knowledge and understanding of the relationship between risk management and firm performance are still ambiguous. It is believed that a good risk management process and implementation will largely impact the performance of firms and enhance Nigeria's economy. There is an ongoing debate in understanding the various factors responsible for the poor performance of non-financial firms in Nigeria, which necessitated this study

1.3 AIM AND OBJECTIVES OF THE STUDY

The study seeks to determine the impact of risk management on firm performance in selected brewery firms in Lagos State. The objectives of the study are:

1. To determine the relationship between risk management and firm performance in Lagos State Nigeria
2. To measure the extent of implementation of risk management practices among brewery firms in Lagos State
3. To determine the types of risk management practices adopted by brewery firms in Lagos State
4. To identify the challenges of risk management practices implementation among brewery firms in Lagos State

1.4 RESEARCH QUESTIONS

The research questions are:

1. What is the relationship between risk management and firm performance in Lagos State Nigeria?
2. How can the extent of implementation of risk management practices among brewery firms in Lagos State be measured?
3. What are the types of risk management practices adopted by brewery firms in Lagos State?
4. What are the challenges of risk management practices implementation among brewery firms in Lagos State?

1.5 STATEMENT OF THE HYPOTHESIS

 H0: there is no significant relationship between risk management and firm performance in Lagos State Nigeria

H1: there is significant relationship between risk management and firm performance in Lagos State Nigeria

1.6 SIGNIFICANCE OF THE STUDY

This study will be of immense benefit to other researchers who intend to know more on this topic and can also be used by non-researchers to build more on their work.

This study contributes to knowledge and could serve as a bench mark or guide for other work or study. It avails individuals with information about the impact of risk management on firm performance in selected brewery firms in Lagos State.

1.7 SCOPE OF THE STUDY

The study covers on the impact of risk management on firm performance in selected brewery firms in Lagos State from the year 2010 -2024

1.8 LIMITATION OF THE STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.9 DEFINITION OF TERMS

RISK MANAGEMENT: Risk management is the process of identifying, analyzing, and responding to potential threats to an organization. It involves making decisions to reduce the likelihood of risks, or to mitigate the impact of unavoidable risks

FIRM PERFORMANCE: Firm performance is a measure of how well a company uses its resources to achieve its goals and meet the needs of its customers. It can also be defined as the total value a company creates through its activities

ROA: ROA could refer to Return on Assets, an accounting ratio that measures a company's profitability, or an artist or an Italian shoe brand

ROE: Return on equity is a ratio that provides investors with insight into how efficiently a company (or more specifically, its management team) is handling the money that shareholders have contributed to it. In other words, ROE measures the profitability of a corporation in relation to stockholders' equity.