RISK MANAGEMENT PRACTICES AND FINANCIAL PERFORMANCE

OF LISTED INSURANCE FIRMS IN NIGERIA

MAY JESUKOLADE JEREMIAH

MATRIC NO: 170601014

A PROJECT SUBMITTED TO THE DEPARTMENT OF ACCOUNTING,

FACULTY OF ADMINISTRATION AND MANAGEMENT SCIENCES,
ADEKUNLE AJASIN UNIVERSITY, AKUNGBA AKOKO, ONDO STATE,
NIGERIA.
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE
AWARD OF BACHELOR OF SCIENCES DEGREE (B.Sc.). IN
ACCOUNTING.

MARCH, 2023

i
 DECLARATION

I, May Jesukolade Jeremiah with matriculation number 170601014 declare that this

research was carried out under the supervision of the Department of Accounting,

Adekunle Ajasin University, Akungba-Akoko, Ondo State. I declare that this project

has not been presented either wholly or partially for the award of any degree

elsewhere

May Jesukolade Jeremiah Signature & Date

ii
 CERTIFICATION

This is to certify that this project was carried out by May Jesukolade Jeremiah with

matriculation number 170601014 under our supervision in partial fulfillment of the

requirement for the award of Bachelor of Science (B.Sc.) in the Department of

Accounting, Faculty of Administration and Management Sciences, Adekunle Ajasin

University, Akungba-Akoko, Ondo State, Nigeria.

_________________________ ________________________
Dr. Igbekoyi O. E Sign/Date
(Supervisor)

_________________________ _________________________
Dr. Alade, M. E Sign/Date
(Head of Department)

iii
 DEDICATION

This project work is dedicated to God Almighty, who in his love and grace

gave me the opportunity to complete this research work.

iv
 ACKNOWLEDGEMENTS
To the God of possibilities, I give all glory to God almighty for making this journey
a possible and achievable one for me. I am eternally grateful Lord and I will worship
you forever.
My sincere gratitude goes to my supervisor, Dr. (Mrs.) Igbekoyi O.E. (FCA) for
her motherly love and care, guidance, assistance and tolerance throughout the course
of this research work, who demonstrated intense interest in my research work by
taking the pain of reading through it and making necessary corrections and several
useful suggestions at every point of this research work. God bless you and your
family more abundantly. My sincere appreciation also goes to my amiable father in
the department in person Dr. Oladeji Oladutire and Dr. Adegbayibi A.T for their great
support throughout my academic program.

My honest gratitude also goes to my amiable Head of Department (HOD

Accounting) in person of Dr. Alade M.E. (ACA) for his profound tutelage. My
gratitude also goes to lecturers, and non-teaching staff of the Department of
Accounting: Prof. Felix Olurankinse (FCA), Dr. (Mrs.) Igbekoyi O.E (FCA); the
immediate past Head of Department, Dr. Oladutire E.O., Dr. Agbaje W.H, Dr.
Adegbayibi A.T., Dr. Adeusi S.A (ACA), Mr. Olabisi O.S. (ACA), Mrs. Odugbemi
O.M. (FCA), Mr. Aiyesan O.O. (ACA), Mr. Adegboyegun A.E. (ACA), Mr.
Oloruntoba S.R. and Mrs. Olukayode F. Your impact in my life during my stay on
campus cannot be overemphasized.

I want to sincerely appreciate my parents Mr. & Mrs. May, for your love, advice
and financial support throughout my academic program. May you eat the fruit of your
labour.

To my friends Temiloluwa, Zicco, Emmyjaxon, Dave, Folaseun, Raymond, Esther,

Kayode, Femigold, i also extend my gratitude to my colleagues that I could not
mention their names, I appreciate you all, God bless.

v
 TABLE OF CONTENTS

Title Page i

Declaration ii

Certification iii

Dedication iv

Acknowledgement v

Table of contents vi

List of Tables ix

List of Abbreviation x

Abstract xi

CHAPTER ONE: INTRODUCTION

1.1 Background to the Study 1

1.2 Statement of the Problem 5

1.3 Research Questions 7

1.4 Objectives of Study 8

1.5 Research Hypothesis 8

1.6 Significance of the Study 8

1.7 Scope of the Study 9

1.8 Operational Definition of Terms

CHAPTER TWO: LITERATURE REVIEW

2.1 Conceptual Review 11

2.1.1 Risk Management Practices 11

2.1.1.1 Risk Management committee Size 13

2.1.1.2 Risk Management Committee Independence 14

2.1.1.3 Risk Management Committee Meeting 15

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2.1.2 Financial Performance 16

2.2 Theoretical review 17

2.2.1 Signaling Theory 18

2.2.2 Agency Theory 19

2.2.3 Stakeholders theory 20

2.3 Empirical Review 22

2.3.1 Board Risk Management Committee Size and Financial Performance 22

2.3.2 Board Risk Management Committee Independence and Financial Performance 25

2.3.3 Board Risk Management Committee Meeting and Financial Performance 26

2.4 Gap in literature 28

CHAPTER THREE: METHODOLOGY

3.1 Research Design 30

3.2 Source of Data 30

3.3 Population and sample of the Study 30

3.4 Sample size and Sampling Technique 30

3.5 Model Specification 31

3.6 Measurement of Variables 31

3.7 Data Analysis Technique 33

CHAPTER FOUR: DATA PRESENTATION, ANALYSIS, AND DISCUSSION OF

FINDINGS

4.1 Descriptive Statistics 34

4.2 Test of Variables 35

4.2.1 Correlation Matrix of Dependent and Independent Variables 35

4.2.2 Normality Test 36

4.2.3 Multicollinearity Test 37

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4.2.4 Test for Heteroscedasticity and Auto-Correlation 37

4.2.5 Panel Unit Root Test of the Variables 37

4.3 Effect of Financial Performance of listed Insurance Firms in Nigeria 38

CHAPTER FIVE: SUMMARY, CONCLUSION, AND RECOMMENDATION

5.1 Summary 40

5.2 Conclusion 41

5.3 Recommendations 41

References 42

Appendix 45

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 LIST OF TABLES
Tables Pages
3.1 Measurement of variables 32
4.1 Descriptive Statistics 34
4.2 Correlation Analysis of Study Variables 35
4.3 Normality of Residua Test 36
4.4 Panel Unit Root Test 48
4.5 Fixed effect regression 39

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 LIST OF ABBREVIATIONS

SME Small and Medium scale Enterprises

ROA Return on Asset

ROE Return on Equity

RMCI Risk Management Committee Independence

RMCS Risk Management Committee Size

RMCM Risk Management Committee Meeting

FP Financial Performance

VIF Variance Inflation Factor

x
 ABSTRACT
On a global scale, financial performance is a broad focus that consider both short term and
long-term impact on financial stability of the company and also shows the extent to which
financial goals and objectives is achieved (Ewool, & Quartey, 2021). However, most
companies in Nigeria viewed financial performance on a narrow scale by considering only
short-term impact on financial stability. This study therefore investigated risk management
practices and financial performance of listed insurance firms in Nigeria.
Data for the study were sourced through secondary source from the financial statements of
over 20 insurance firms listed on the Nigerian Exchange sector within the period studied
(2016-2021) and the study adopted ex-post facto research design. Descriptive Statistics,
Correlation and and interpretation of the data collected for this study which focus on the
financial performance of listed insurance firms in Nigeria.
This findings revealed that the variable of risk management committee meetings appears to
insignificantly influence the financial performance of listed insurance firms in Nigeria. The
results also shows that risk management committee size and risk management committee
independence have a significant effect on the financial performance of listed insurance firms
in Nigeria.
The study therefore recommends that policies that will increase the independence risk
management committee should be considered. Too many risk committee meetings intitaes
huge cost for the company. Time resouces are also being wasted as resouseful ouctcomes are
not met. Furthermore, concerned policy makers should come up with a framework of risk
management committee size that fits a firm’s operations. By so doing, the question of what is
the optimal number of risk committee members of a firm would have been answered.

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 CHAPTER ONE

INTRODUCTION

1.1 Background of the study

The corporate world of today is tremendously competitive and usually unpredictable due

to the rapid evolution of technology. However, this has transformed how many organizations

make decisions in order to attain growth and development goals through profit-making,

maximizing shareholder value, extending market share by recruiting investors, and seeking to

stay up with the latest and continuously shifting global business trends (Kakanda,2017).

Organizations engaged in risky investment opportunities in order to secure expansion and

growth. Furthermore, regular policy evaluations and the development of new company strategies,

both of which are required to sustain competitiveness, are typically fraught with risk (Indawati,

2021). Given the complexities of corporate enterprises, risk exposure management has become

critical for commercial organizations (Culp, 2018). Risk is the possibility that a negative event

will occur and have the potential to harm the organization interests (Emmanuel, 2017). Risk is a

global issue that needs to be addressed; it has an impact on an organization in the form of direct

financial loss, changing earnings, financial trouble, and non-financial implications on the

company's potential to generate future profits. According to Emmanuel (2017), risk creates

impediments to achieving desired objectives for companies, as well as increases threats to

enterprises and limits possibilities to exploit. As a result of the risk encountered in operational

activities, the effects of globalization, deregulatory policies, and severe competition continue to

make commercial organizations more unstable (Yusuf et al., 2022). Risk has been defined as a

12
phenomenon that affects company activities, resulting in financial loss, reputational damage, and

an inability to capitalize on possibilities (Kakanda,2017).

Organization ability to handle risk effectively influences whether it will succeed, fail, or

perform better. Organizational performance allows firms to identify critical problem areas and

make essential modifications. Conducting research on an organization's success is critical

because it not only identifies the critical material and immaterial components that affect success

or failure, but it also evaluates performance practices, performance management, and other

departments, as well as employee well-being (Yusuf et al., 2022). Performance is critical to a

company's existence and expansion. It involves the process by which the limited resources

available to an organization are effectively and efficiently managed in order to achieve its

predetermined goals for both the short and long future (Kakanda, 2017). Firm performance helps

to assess shareholders wealth between the start of one accounting period and the end of another

(Berger & Patti, 2022). In this regard, company performance provides shareholders with hope

for the advancement of their investment by providing information about the organization's

financial situation. As a result, non-financial companies' performance will show how much better

a shareholder has done with their investment over time, and this can only be done when the

company is making money. According to Amerta and Soenarno (2017), investors gain

confidence in a company's future returns by evaluating its performance. The higher a company's

performance, the better its ability to generate profits is (Indawati, 2021).

Insurance company management are curious about the negative effects of risk on the

company's operational activities and strategic plan, so risk management is ingrained in the

culture of the company. According to Indawati, (2021) risk management is the process by which

13
an organization discovers and evaluates risks, considers alternatives, and accepts or mitigates

those risks before they begin to hinder operations. The board's oversight responsibilities cover

corporate risk management, which is a governance issue. It is not just the management team's

business and operational responsibility. Directors face a constantly shifting risk governance

environment, which demonstrates that some issues have either lost their significance over time or

taken on greater significance in the wake of the epidemic. Risk management takes the company's

risk appetite into account when deciding which risks should be accepted and which should be

reduced or avoided. (Yusuf et al., 2022). Risk management aids in preventing reputational

damage and the ensuing consequences for the organization, as well as in ensuring accurate

reporting and compliance with rules and regulations. As risk management strategies become

more efficient, a company's financial performance frequently improves (Yusuf, et al., 2022).

Risk management is important to businesses because it is ingrained in the culture of the

organization. It keeps all kinds of risk exposed to protect the business from the negative effects

of all kinds of risk and increases an institution's risk, adjusted risk rate of return.

Because it enables organizations to view all hazards through some kind of pre-

planned activity, risk management is now regarded as one of the essential characteristics of

successful businesses (Culp, 2018). The organization has implemented risk management

procedures in an effort to reduce adverse impact risk. It is anticipated that improved risk

management practices in terms of board risk committee independence, board risk committee

size, and meeting frequency will lessen the firm's risk exposure and enhance insurance company

performance in Nigeria. It's possible that the board's size has something to do with the size of the

risk management committee. When there is a large risk committee, it is easier to find directors

with the organizational and leadership expertise needed for the committee that is dedicated to

14
risk management. As a result of the establishment of monitoring committees by boards, which

lessen the costs associated with larger boards, larger boards have been linked to higher levels of

performance as well as increased risk-taking. The size of the risk committee which is seen as the

number of directors on the committee will increase chances of finding a director with the skills

needed to monitor, plan, and manage the organization's risk. The organization's performance is

improved in this scenario.

The number of times members of a risk management committee meet to discuss risks

ensures that potential issues are frequently identified before they become more serious. A

reliable means of communication regarding the evaluation and prevention of horizontal and

vertical risks is established through the committee meetings. A professional with experience in

the identification, assessment, and management of risk coverage supervision is often present at

the meeting to provide guidelines and principles that guide the assessment and supervision

processes. In order to effectively monitor a risk's activities, it is essential that the risk committee

has independence in terms of the proportion of non-executive directors to its total size. Because

of the independence of the members of the risk committee, insiders' risky activities are less likely

to occur, which reduces losses, especially during the financial crisis. The independence of the

committee aids in avoiding any unwanted or ominous danger. A higher quality level of risk

management function discharge will result from independence. A company's revenue and

profitability are expected to rise as a result of effective risk management, which will undoubtedly

improve financial performance. Therefore, it is necessary for risk management to be connected

to organizational performance, which is anticipated to eventually result in sustainable growth.

However, the major concern is to determine if the utilization of risk management practices has

the capacity to solve the problems of performance in listed insurance firm in Nigeria.

15
1.2 Statement of the Problem

On a global scale, financial performance is a broad focus that consider both short term

and long-term impact on financial stability of the company and also shows the extent to which

financial goals and objectives is achieved (Ewool, & Quartey, 2021). However, most companies

in Nigeria viewed financial performance on a narrow scale by considering only short-term

impact on financial stability. This has resulted to collapse of corporate organization in Nigeria

such as AfriBank, Oceanic bank, Nicon insurance etc. and also result in taking excessive risk and

engaging in financial practices that are not sustainable (Jaber, 2020).

According to Emmanuel (2017), the recent corporate failures of insurance companies in

Nigeria can be attributed to the poor risk management practices. Olugbemiga, et al. (2016) stated

that the inability implements an adequate risk management practice resulted to poor financial

performance. According to Onyekwelu and Onyeka (2017), the corporate entity's poor financial

performance has diminished the assets, worth, and investments of shareholders, and this can be

attributed to the absence of risk management procedures. Abu-Rumman et al. (2021) claim that

corporate entity risk has increased as a result of business failures brought on by poor financial

performance. The insurance company has been exposed to financial risk as a result of poor

performance, making it unable to obtain the necessary funds from financial institutions for

business expansion. Poor financial performance has been linked to the company's inability to

meet its upcoming financial obligations. According to Emmanuel (2017), firms are exposed to a

high degree of market risk due to their inability to monitor and take active oversight of changes

in the market environment.

16
 The most significant problem was found to be a lack of or poor implementation of

management and business practices to support the activities of the organization in order to boost

financial performance. According to Jaber (2020), risk management practices are a component of

these business and management practices. Indawati (2021) added that poor management

practices led to low performance, which in turn caused financial losses, damage to the company's

reputation, and a threat to the safety and security of employees' jobs. Additionally, a lack of

management practices can lead to issues such as low productivity, low motivation, and brand

damage. According to Jaber (2020) poor financial performance necessitates dealing with

economic issues, which leaves businesses with inadequate risk awareness and prompts them to

make decisions that could cost them money.

Dealing with risk exposures and poor performance has become essential given the

complexity of corporate operations, necessitating the incorporation of risk management

procedures into organizational culture. As a result, a number of academics in developed and

developing economies have investigated the ways in which risk management practices can

improve an organization's performance. However, evidences gathered in developing countries

shows the extent of work carried out on risk management practices and financial performance in

different sector of the economy (Zemzemaa & Kacem, 2015; Hitimana, Kule, & Mbabazize,

2016; Emmanuel, 2017; Girangwa, Rono, & Mose, 2020; Agyemang, et al., 2020; Atiso,

Koranteng, & Boakye, 2020; Ewool, & Quartey, 2021; Al-Nimer, et al., 2021, Otanga, 2021;

Amerta & Soenarno, 2022; Mamari, Ghassani,& Ahmed, 2022.)

In Nigeria context, few empirical evidence was gathered and such empirical studies focus

attention on deposit money banks (Olugbemiga, Isaiah, & Esiemogie, 2016; Ebenezer & Ahmad,

17
2016; Olayinka, et al., 2017; Abubakar, et al., 2018) and SMEs (Afolabi & James, 2020;

Ojubanire & Dawodu, 2021). Although to some extent, those studies adequately arrived at same

empirical findings on how risk management practices enhance performance. But attention of

those studies in Nigeria only focuses more on deposit money banks and SMEs and a more recent

data has not been included in the studies' analysis. In other to fill the gap, this study will focus on

listed insurance firm in Nigeria and a more recent data will be considered in the study's analysis.

Therefore, this study will investigate the effect of risk management practices on the performance

of listed insurance firm in Nigeria.

1.3 Research Question

i. To what extent does board risk management committee size affect the financial

performance of insurance firm in Nigeria?

ii. To what extent does board risk committee meetings affect the financial performance of

listed insurance firm in Nigeria?

iii. To what extent does board risk management committee independence affect the financial

performance of listed insurance firms in Nigeria?

1.4 Objectives of the Study

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The broad objective of the study is to examined the effect of risk management practices on the

financial performance of listed insurance firm in Nigeria. The specific objectives are to:

i. examine the effect of board risk management committee size on the financial

performance of listed insurance firm in Nigeria.

ii. evaluate the effect of board risk management committee meetings on the financial

performance of listed insurance firms in Nigeria.

iii. assess the effect of board risk management committee independence on the financial

performance of listed insurance firms in Nigeria

1.5 Research Hypothesis

Ho1 : There is no significant effect between board risk management committee size on financial

performance of listed insurance firms in Nigeria.

Ho2 : There is no significant effect between board risk management committee meeting on

financial performance of listed insurance firms in Nigeria

Ho3 : There is no significant effect between board risk management committee independence on

financial performance of listed insurance firms in Nigeria

1.6 Significant of the Study

The research will be useful to the management of insurance firms because it will allow

them to modify or redesign their risk management strategies. It might assist them in developing

effective risk management that will improve financial performance. It will also educate them

about the principles that govern operational risks in financial sector. To the stakeholders, this

study will significantly reduce the cost of risk in the financial operations of financial institutions.

19
Since the widespread firm collapse may significantly decline as a result of this study, it will

increase the public's trust in the insurance industry.

The Government may also gain from this study in that it will provide guidance for

developing operational risk management regulations for the nation’s sector. The study's results,

conclusions, and suggestions will also add to the body of literature in higher learning. As a

result, they serve as a repository for literature on future studies by researchers

1.7 Scope of the Study

The study is within the area of risk management and financial performance. The study

will cover twenty-two (22) listed Insurance firms in Nigeria as at 31 st December, 2021. The study

is covering the period of 2012 to 2021. The base year was selected because it was post-

consolidated period of the financial institutions and they are believed to have been grounded.

This study will focus on the annual report of the company.

1.8 Operational definition of terms

Risk Management - Risk management is the process of identifying, assessing and

controlling threats to an organization’s capital and earnings. These risk stem from a varieties
of sources including financial uncertainties, legal liabilities, technology issues, strategic
management errors, accidents and natural disasters.

Financial Performance - Financial performance is a subjective measure of how well a firm

can use assets from its primary mode of business and generate revenues. The term is also
used as a general measure of a firm’s overall financial health over a given period.

Insurance Firms - Insurance company, insurance underwriter, insurer, underwriter. A

financial institution that funds their investment activities from the scale of securities.

20
Financial Risk - Financial risk refers to the ability to manage your debt and fulfil your
financial obligations. This type of risk typically arises due to instabilities, losses in the
financial market or movement in stock prices, currencies, interest rates, etc.

Managerial Risk - This the risk, financial, ethical, or otherwise associated with ineffective,
destructive, or underperforming management. Management risk can be a factor for investors
holding stock in a company. The risk associated with managing an investment fund is also
called management risk.

Market Risk - Market risk s the risk that arises from movement in stock prices, interest
rates, exchange rates and commodity prices.

CHAPTER TWO

21
 LITERATURE REVIEW

This chapter covered the literature and concepts, related theories and empirical literatures. .

2.1 Conceptual Review

The section explains the concepts of risk management practices, risk management committee

size, risk management committee independence, risk management committee meeting and

financial performance.

2.1.1 Risk Management Practices

Risk management is a coordinated action taken by a company to manage and control the risks

faced by the company. It is a culture that came into existence as a result of the negative impact of

risk occurrences in organization activities. It is a framework that helps to manage both pure and

speculative risk.

Uzun et al., (2022) defines risk management as a process put in place by management and other

staffs within the company which form a strategy to identify risks that the firm faces and how the

firm manages these risks to provide sufficient confidence in them towards achieving fixed goals.

According to Ahmed et al. (2018), risk management practices is a culture and practices put in

place identify, priorities and estimate likelihood of adverse occurrence in business activities. His

conceptualization states that risk management is built on a system that control and ensure the

economical use of resources in other to reduce, monitor, and control risk and impact of

unforeseen incidents.

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Karanda (2017) defines risk management as the process of identifying events that create risk and

assessing those risks using risk models, monitoring and reporting risk assessments and risk

control. He further stated that it is a process that require supervision in other to ensure that the

company has a proper risk culture in place that can prevent the adverse effects of future events

arising from the organization's decisions or actions. Emmanuel (2017) opined that risk

management is a process by which executive management under the board’s supervision

identifies risk arising from business operations and set out priority for its control towards

achieving a defined objective. His position viewed that risk management is an oversight

guideline that begins with the board in the area of deciding risk strategy, risk level and oversee it

implementation.

Nguyen et al., (2015) opined that risk management is a strategy used to transfer hazard and

reducing the probability and negative impact of the risk. According to him, it is seen as a strategy

that focus on achieving opportunities while controlling unwanted results. Mokni and Rachdi

(2012) defined risk management as the core business of any non-financial firms, which includes

identification, measurement, monitoring and control risks. Therefore, it is imperative for a risk

manager to have a comprehensive understanding of risks and hazards measuring exposure to

risks in order to effectively carry out the tasks entrusted to him. They conceptualized that

monitoring and screening is important managers to perform risk management function and

assessment so that the risk management environment, policies and procedures, risk measurement,

risk mitigation, risk monitoring and internal control can be closely monitored

Based on the definition in the literature, risk management is a practice that helps control any

identified risk. According to Uzun et al., (2022), defines risk management as a process put in

23
place by management and other staffs within the company which form a strategy to identify risks

that the firm faces and how the firm manages these risks to provide sufficient confidence in them

towards achieving fixed goals. According to them, the purpose of risk management is to manage

risk that are faced by the company and also determining structure and strategic framework

guidelines for company’s activities. Company disclosures related to risk management may be

used as material for analysis by investors in making investment decisions. Al-Matari et al.

(2014), risk management is a complex process that includes exposure degree identification, data

collection, risk quantification, risk guideline setting, risk assessment and risk management

performance evaluation. Risk management practices are an organizational culture that is

integrated into overall corporate strategies (Adeusi et al., 2014).

For efficient discharge of risk management function, the board may establish a risk management

committee to assist in the oversight of risk profile, defining risk appetite and limiting risk.

However, Wamalwa and Mukanzi (2018) assert that setting up the committee requires putting in

place some certain factors and attributes which will help in the efficient discharge of risk

management function. According to him, such factors or attributes include the size of the

committee, the independence of the committee, it’s diversity and how often meetings are been

held etc.

2.1.1.1 Risk Management Committee Size

The presence of a risk management committee and board size may be related. A big board size

provides more opportunity to identify directors with the necessary skills to lead and establish a

subcommittee devoted to risk management. The monitoring committees are established by the

boards of directors to reduce the costs associated with larger boards (Upadhyay et al., 2014). In

24
order to effectively manage risk controls and reduce misconduct in a business, the size of the

board risk committee is an important issue to consider while establishing a committee (Nguyen,

2015). A greater committee size offers power, competence, and diversity of viewpoints, which is

useful in terms of resolving possible issues (Bédard, et al., 2014). Given the complexity and

opaqueness of their operations, the size of a committee guarantees that risk supervision

arrangements reduce structural elements that may make it difficult for external shareholders to

effectively oversee an organization (Andres & Vallelado, 2018)

2.1.1.2 Risk Management Committee Independence

Risk committee independence represent the number of members of the risk committee who are

free from undue influence which can impact their risk management function. For a risk

committee's ability to oversee risk management function, the independence of the risk committee

from management is crucial. It is acknowledged that the presence of a sizable number of non-

executive directors on the board is a reliable indicator of the risk management committee

independence. Independent executive directors are in charge of overseeing managerial behavior

connected to risk-taking activities. Therefore, it is said that non-executive directors will demand

higher-quality governance than executive directors since they care more about their status.

According to Uzun, et al., (2018), organizations with more non-executive directors have good

governance and have fewer fraud allegations.

According to Fama and Jensen (1983), risk management committee independence refers to the

proportion of independent non-executive directors who serve on the committee. In contrast to

boards with a small number of non-executive directors, those with a higher number of non-

executive directors are able to vigorously investigate risks, and they view the formation of a risk

25
management committee as a crucial means of support to help them achieve their risk

management oversight function. When a committee is made up of independent directors, Tao

and Hutchinson (2012) argue, they will be able to monitor and control management risk taking

actions and make sure all the plans are effective. As indicated by Osayantin and Embele (2019),

independent directors will serve both administration and partners of the organization through

legitimate checking and complete disclosure of both monetary and non-monetary data.

Independent directors are able to give oversight and revelations because of their longing to keep

up with their standing and work on firm execution (Murah, 2007). Thus, a good risk management

committee structure should be one that there would be a balance between independent directors

and non-independent executive directors; this good structure enhances the quality of the

committee function

2.1.1.3 Risk Management Committee Meeting

Risk Management Committee Meeting is good practice for management to convene a discussion

of risk cases when there are concerns that require the committee to obtain relevant information to

accurately assess the occurrence of risk (Osayantin & Embele 2019). Tao and Hutchinson (2012)

opined that the meeting of the risk management committee is to ensure that when organizations

are involved in business decisions that pose a high risk to the firm or others, such a committee

can decide how to mitigate the possible occurrence of such risk for all stakeholders through the

meeting held. The meeting is a way to discuss the next step in the management and control of

risks and the solution of possible risky cases. Risk Management Meetings are also a way to link

all risk management principles and reporting and to evaluate their effectiveness more often. It

helps ensure that risk is effectively planned and appropriately managed by all managers. A risk

26
management consultation will assess the immediate risk in relation to the company’s current

behavior and/or environment and create a plan to manage that risk. The Risk Management

Meeting will discuss the communication strategy, risk guidelines and procedure to ensure the

smooth running of the business. Emmanuel (2017) stated that frequent meetings should be held

to discuss more frequently issues related to the risks arising from the firm’s activities. Tao and

Hutchinson (2012) reported that frequent meetings improve the effectiveness of risk

management communication. Meanwhile, Lipton and Lorsh (1992) stated that frequent risk

committee meetings show that the risk committee is active in monitoring the company’s risk

management system.

2.1.2 Financial Performance

Financial performance is the measurement of the effectiveness of the operations and policy of the

companies in monetary terms. Financial performance reveals a company's overall financial

health over time. It enables simultaneous comparison of many businesses involved in the same

industry (Wanjohi, et al., 2017). Financial performance, according to Suka (2010), is a general

indicator of an institution's ability to make profits while utilizing its money and other resources.

Suka (2010) considered financial performance to be a subjective indicator of how well and

effectively a company uses its resources to generate income. Financial performance is described

by Eastburn and Sharland (2017) as "a straightforward indicator of management's prior risk

decision capabilities." Financial Performance is the measure of the organization success with the

use of ratios such as profitability ratio, solvency ratio, efficiency ratio etc. (Ahmed et al., 2018).

According to him, financial performance is therefore an indicator that assess how firm is

27
profitable, solvent and how efficient it is in utilizing the resources committed into the firm. In

this study, financial performance is measured by Return of Assets (ROA)

According to Al-Matari, Al-Swidi, and Fadzil (2014), Return on Assets is the performance

indicator that Risk management literature uses the most frequently in accounting-related

determinants. This is an estimation of short-term performance and is calculated as net income

divided by total assets. According to Kenny et al. (2014), ROA is an indicator that assesses the

effectiveness of the use of assets and communicates to investors the profits that have been made

from money invested in capital assets. They also stated that the return rate on a company's assets

best represents the efficient utilization of such assets. According to Al-Matari et al. (2014), ROA

is an indicator that enables investors to know how well non-financial firm risk management

practices are functioning so far as enhancing the level to which the firm management is running

efficiently. This is because all non-financial firm’s management are responsible for the

operations of the firm and utilization of the firm's assets.

2.2 Theoretical Review

The study reviews the following theory: Signaling Theory, Agency theory and Stakeholders

theory

2.2.1 Signaling Theory

Spence in 1973 originally created the concept for signal theory by incorporating the labor market

into the signal function model. Signaling theory assumes that organization sends signal quickly

to shareholders, investors, and other stakeholders’ group where a positive news existed about the

firm performance (Rani & Triani,2021). The signal is always in form of financial report. Due to

28
management's superior knowledge of the company's prospects and future opportunities compared

to outside parties, signaling theory was created in economics and finance (Goranova et al.,

2007). Asymmetric information can emerge when one party sends a signal that will reveal some

information to the other side, and the origin of this phenomenon is the signaling theory (Firnanti

& Karmudiandri, 2020). According to Ross (1977), businesses can utilize asymmetric

information to present financial reports as a strong signal to the market. Market participants will

see information provided by management to the market as a positive signal because it helps to

eliminate asymmetry in information. As a tool for analysis in the process of making investment

decisions and to minimize information gaps or asymmetric information between management

and investors, signaling theory refers to a signal delivered by management to investors regarding

the company's state (Brigham & Houston, 2019). The financial report is a document that

management can use to convey good or bad news.

In context of risk management practices, signaling theory suggests that any system or practices

implemented to enhance organization performance will speed up the rate at which a signal is sent

to shareholders, investors and other stakeholders’ group so as to spread the good news.

Therefore, when a risk management practices is imbibing in the organization culture, adverse

effects of risk is minimizing and performance is enhanced, in this regard the management will be

willing to communicate it financial report more quickly to the users. This theory is imperative in

this study because it shows that the implementation of risk management practices will give a

positive result to investors and others stakeholders group through the good signal the

management sent to them as a result of the risk management implemented. When this occurs,

more investors will be willing to commit funds into the firm without that fear of loosing their

investment.

29
2.2.2Agency Theory

Agency theory was propounded by Jensen and Meckling in 1976. The theory is used to explain

and understand the relationship that exist between the agent and the principal. In a corporate

setting, the agent represents the directors and the principal represent the owner of the business.

The agent being the directors act on behalf of the principal in other to carryout business activities

in line with the interest of the principal without a regard for self-interest. However, there might

be a difference between the interest of the agent and that of the principal, thus creating an agency

problem or principal-agent problem. The principal being the owner of the business is concerned

more about wealth maximization, while directors might be concerned more about profit

maximization because their bonuses and other incentives depends on the level of profit realized.

The theory then addresses the agency problem that occur in a situation where there is

discrepancies between owners and managers’ interest. Since there is a separation between

management and ownership, a conflict of interest might occur between the management and the

owner therefore, the theory seeks to ensure minimization in such interest.

According to agency theory, pre-existing relationships show that the principal party decides the

job, and the agent actually does the work (Jensen & Meckling, 1976; Ross, 1973; Eisenhardt,

1989). It is excellent for controlling, regulating, and monitoring an organization. This idea aids

management in identifying and monitoring risks, as well as the company's strengths and

weaknesses. Risk management, according to Smith and Stulz (1985), may have an impact on

managerial behaviors related to taking and avoiding risks. According to Kenny, Jumoke, and

Faderera (2014), the theory further clarifies a potential conflict of interest between shareholders,

management, and debt holders as a result of asymmetries in the distribution of earnings, which

30
can result in the company taking an unacceptably high risk or deciding not to participate in

projects that would increase net value.

The theory is significant to this study because it emphasized on the reason why management of

non-financial firms may or may not engage in risk management practices. The theory helps to

understand that risk management practices is influenced by management behaviors. When there

is a minimization of conflict of interest, management behaviors will be re-shaped positively

towards fulfilling the mandate of the shareholders therefore, management will be willing to

undertake a project that will enhance the value of shareholders wealth and since the project do

come with a risk, management will be more committed to risk management practices.

2.2.3 Stakeholders Theory

Edward Freeman in his book titled “Strategic management: A stakeholder Approach”

propounded the stakeholder theory in 1984. The theory explains a stakeholder of a company to

includes anyone that is affected by the company and its workings which includes customers,

supplier, employee, government, shareholders, pressure groups etc. According to his book, a lack

of concentration on everyone involved in the of a business affect the health of the organization,

therefore, there must be a strong oversight and consideration on all stakeholders group and not

only on shareholders. Stakeholders theory hypothesis contends that directors ought to decide in

order to assess the interests of all stakeholders in a firm including financial petitioners, yet in

addition customers, society and government (Freeman, 1984). The point of view of the

hypothesis is that the goal of a firm is not just centered on the shareholders thus, organization

must meet a multiple goal of different stakeholder’s groups so as to ensure the survival and

success of the organization. Freeman (1984) contends that business firm ought to be more

31
concerned about the interests of different stakeholders while taking vital decisions. Peasnell et

al. (1998) relates stakeholder’s theory to "accountability" which is characterized by as the

obligation of one party to another where a resource is placed under the care of another. As far as

he might be concerned, stakeholder hypothesis expects that directors ought to give solid data to

the different stakeholders consistently

According to Sathyamoorthi et al., (2020), stakeholder theory, which was first introduced by

Freeman (1984) as a managerial tool, has evolved into a business model with significant

explanatory power. The stakeholder model places a strong emphasis on the balance of

stakeholder interests as the key determinant of company strategy. Klimczak (2005) contends that

consumer trust in the company can help it retain it services in the future and greatly boost firm

value in several industries, particularly high-tech and services. However, because corporate risk

management procedures reduce these projected costs and improve firm value, the value of these

indirect assertions is particularly sensitive to the consequences of financial hardship and

bankruptcy. Therefore, Judge (2006) argues that the stakeholder model gives a new

understanding into probable motivation or basis for risk management.

Following the premise of this theory, the theory reveals that risk management function should

not be centered on minimizing firm hazard towards improving shareholders wealth only but also

focus on other stakeholders’ groups so that the firm can keep operating in the dynamic

environment. This theory is imperative to this study because it helps to gain understanding that

risk management practices focuses on all parties who can affect and be affected by the firm. In

this regard, a complete risk management oversight is achieved towards enhance the firm value a

performance.

32
Having reviewed the relevant theory on risk management practices and performance, this study

will be anchored on signaling theory because the theory shows that the desire of the management

to report positive news to shareholders will necessitate them to imbibe risk management culture

so that adverse outcome arising from firm decisions will not destroy the firm performance in

terms of profit, solvency and efficiency.

2.3 Empirical Review

2.3.1 Board Risk Management Committee Size and Financial Performance

Otanga (2021) investigated the relationship between corporate risk management on Financial

Performance with Investment decisions as a moderating variable. The study adopted a

descriptive research design and obtained data from secondary source where data were obtained

from the financial statements of company under study from 2013-2017. The target population

consist of 19 company. The findings showed corporate risk management size has a negative

significant effect on financial performance.

Agyemang et al., (2020) focuses a study in credit union operating in Ghana to specifically

looked into the relationship between risk management practices and financial Performance. The

study uses a descriptive research design and both primary and secondary source of data were

utilized. A total number of One Hundred (100) respondents were selected using the purposive

sampling technique. A questionnaire was used as data collection instrument. The analysis

revealed that risk management practices in terms of risk management size have strong positive

relationship with return on asset (ROA) and return on equity (ROE). Also, the study revealed

that the higher the return on asset (ROA), the better will be the risk measurement practices and

33
risk monitoring practices in the credit unions. While credit unions tend to have higher return on

equity (ROE) with a good risk management practice.

In a similar study conducted by Ewool and Quartey (2021), risk management practices and

financial Performance of microfinance bank was assessed. The study was anchored on a survey

research design and a primary source of data was used to obtained data from all microfinance

bank operating in Ghana with the administration of questionnaires. The multiple regression

analysis conducted revealed that risk management size has a positive and significant effect on

Return on equity and also risk management practices has a positive but insignificant effect on

Return on Assets.

In Nigeria, Afolabi and James (2018) did a study that assessed the Impact of risk management

practices on the Performance of Small and Medium Scale Enterprises operating in Osun State

Nigeria. The study methodology is based on survey research design and a primary source of data.

Data used for analysis was obtained with the use of questionnaires administered to managers and

owners of SMEs in Nigeria. The target population is 500 SMEs which was narrowed down to

330 SMEs. The linear Regression model was used to analyze the data and the results reveal that

there exists a significant relationship between risk management and the performance of SMEs.

The result further showed that attitude to risk positively affects risk management size and that

there is a strong positive correlation between risk Identification and risk management.

Hitimana et al., (2016) conducted an assessment on the influence of risk management system on

Financial Performance of deposit money banks in Rwanda. The study is based on a descriptive

research design and a secondary method of data collection. The data were obtained from the

annual report of banks between the period of 2011-2014. The sample size of the study consists of

34
40 banks in Rwanda. Data obtained was analyzed using descriptive and inferential statistics. The

Pearson correlation results shows that risk management system in terms of risk management size

has the potency to enhance profitability, liquidity, return on assets and return on equity.

Zemzem and Kacem (2015) investigate the relationship between risk management, corporate

governance and performance in lending institutions. Empirical analyses are conducted from a

sample of 17 Tunisian lending institutions over the period 2002-2011 using an Ordinary Least

Square regression. The study shows that risk management practices affect performance

significantly. Most importantly, the existence of a risk committee size within the institution has a

positive and significant effect on performance.

2.3.2 Board Risk Management Committee Independence and Financial Performance

Ojubanire and Dawudo (2021) examined the influence of risk management practices on

performance of SMEs operating in Osun State Nigeria. The study adopted a descriptive research

design and data were obtained from primary sources with the use of structured questionnaires.

The population and the sample size of the study consist of 273 respondent who are owners and

managers of SMEs in Osun State. A correlation analysis was carried out and it was revealed that

there Is a perfect correlation between risk management and financial performance therefore, risk

management committee independence has a positive and significant effect on financial

performance of SMEs in Osun State Nigeria.

In Kenya, Girangwa, et al., (2020) studies focus on risk management influence Performance of

state enterprise. The study adopted an explanatory cross-sectional survey research design where

data were obtained from primary source via questionnaires administered to 218 state corporation.

35
The analysis of data was done with the use of both descriptive and inferential statistics. The

multiple regression analysis results show that risk management practices in terms of its

independence, governance and process has a positive and significant impact on state corporation

Performance

Abubakar et al., (2018) evaluates the effect of risk management committee attributes on the

Financial performance of listed deposit money banks in Nigeria. Furthermore, the research used

secondary data obtained from the annual report of fourteen (14) banks listed in the Nigerian

stock exchange for the year 2014-2016 with 42 firm-year observations and based on panel data

approach. Furthermore, the regression estimates are based on random effect. The result indicates

that risk management committee independence possesses a significant negative relationship with

ROA. Olayinka et al., (2017) evaluated the effect of risk management practices on financial

performance of firms in Nigeria. The study specifically focuses on 40 firms in the financial

sector. The study adopted a quantitative research design and obtained data from the annual report

of firms under review between the period of 2012-2016. The study empirical findings show that

risk management is positively and significantly related to financial performance. The results

Support the hypothesis that risk management committee independence has a significant impact

on the financial Performance of listed firms in the Nigerian financial sector.

In a study conducted by Oluwagbemiga et al., (2016), the link between risk management

practices and financial Performance was examined. The study focuses on a listed company

operating in Nigeria between the period of 2005-2014. The study utilized both primary and

secondary source to obtain data from 21 deposit money banks listed on the Nigeria Stock

Exchange. While analyzing the data using a pool regression analysis, the results shows that risk

36
management independence has a significant influence on financial Performance of deposit

money banks in Nigeria.

2.3.3 Board Risk Management Committee Meeting and Financial Performance

Al-Mamari, et al., (2022) tested the association that exists between risk management practices

and financial Performance of deposit money banks. The study is based on a quantitative research

design. Data were obtained via secondary source from the annual report of banks listed on

Muscat Stock Exchange. The data obtained were analyzed using a Structural Equation Modelling

and Partial Least Square. The findings revealed that risk management has a significant link with

the return of assets (ROA). This result indicates that risk management has a significant influence

on banks performance (ROA). Additionally, it was found that risk management has no

significant relation to return of equity

Abu-Rummana et al., (2021) studied the effect of risk management practices on financial

performance of banks operating in Lebanese. The study utilized a quantitative research

methodology and data were obtained from primary sources with the administration of

questionnaires. The population of the study consist of 300 respondents where 123 were chosen

using a simple random sampling technique. The findings show that a direct and positive

relationship exists between risk management practices in terms of committee meeting and

financial Performance of banks in Lebanese.

Nimar et al., (2021) study focus on the impact of risk management on firm performance in

Jordan. The study utilized a quantitative research design and adopted a primary source of data.

Relevant data were obtained using questionnaires which was administered to 228 firms in

37
Jordan. Such data were analyzed using both descriptive and inferential statistics. The regression

analysis results show that risk management committee meeting have a significant impact on firm

performance

Atiso, et al., (2020) main study objective is to investigate the effects of financial risk

management practices on financial performance of DMBs in Ghana. The study is based on a

descriptive research design and a secondary method of data collection. The data were obtained

from the annual report of banks between the period of 2011-2014. Both descriptive and

Inferential statistics in the form multiple linear regressions is employed to analyze this

relationship. The study finds risk management committee meetings is positively related to

financial performance

In Uganda, Emmanuel (2017) explored a study that investigated how operational Risk

Management enhances Financial Performance of firms in the Banking Industry. Specifically, the

study narrowed down its focus on Stanbic banks and Mpigi bank. The study was conducted on a

phenomenological approach where survey and case study serve as the instrument for obtaining

data from primary source. The sample size considered in the study is 52 and this was determined

using the census sampling method. Relevant data obtained was analyzed using a regression

analysis and the outcome of the analysis shows that operational risk management significantly

affected financial Performance in Stanbic Bank and thus an improvement in operational risk

management would Increase financial performance.

Ebenezer and Omar (2016) investigated the effect of risk management practices on the financial

Performance of banks in Nigeria. The study was based on a survey research design and data were

obtained from primary sources. The study results show that poor risk management practices

38
reduce firm profitability. Therefore, a positive relationship exists between risk management

committee meeting and financial performance.

2.4 Gaps in Literature

Dealing with risk exposures and poor performance has become essential given the complexity of

corporate operations, necessitating the incorporation of risk management procedures into

organizational culture. As a result, a number of academics in developed and developing

economies have investigated the ways in which risk management practices can improve an

organization's performance. However, evidences gathered in developing countries shows the

extent of work carried out on risk management practices and financial performance in different

sector of the economy (Zemzemaa & Kacem, 2015; Hitimana, Kule, & Mbabazize, 2016;

Emmanuel, 2017; Girangwa, Rono, & Mose, 2020; Agyemang, et al., 2020; Atiso, Koranteng,

& Boakye, 2020; Ewool, & Quartey, 2021; Al-Nimer, et al., 2021, Otanga, 2021; Amerta &

Soenarno, 2022; Mamari, Ghassani,& Ahmed, 2022.)

In Nigeria context, few empirical evidence was gathered and such empirical studies focus

attention on deposit money banks (Olugbemiga, Isaiah, & Esiemogie, 2016; Ebenezer & Ahmad,

2016; Olayinka, et al., 2017; Abubakar, et al., 2018) and SMEs (Afolabi & James, 2020;

Ojubanire & Dawodu, 2021). Although to some extent, those studies adequately arrived at same

empirical findings on how risk management practices enhance performance. But attention of

those studies in Nigeria only focuses more on deposit money banks and SMEs and a more recent

data has not been included in the studies' analysis. In other to fill the gap, this study will focus on

listed insurance firm in Nigeria and a more recent data will be considered in the study's analysis.

39
Therefore, this study will investigate the effect of risk management practices on the performance

of listed insurance firm in Nigeria.

40
 CHAPTER THREE

METHODOLOGY

This chapter discussed the research design, source of data, population, and sample size

and sampling technique, instrument of data collection, validity and reliability of instrument, and

data analysis and technique.

3.1 Research design

This study made uses an ex post facto research design. The choice of the design was

because the data needed is readily available in the annual report and Nigeria Exchange Group

Fact book.

3.2 Sources of Data

The data used were collected from secondary source through the annual report and

Nigeria Exchange Group Factbook for a period of 2016 to 2020.

3.3 Population and Sample of the Study

The population of this study consist of 22 insurance firm listed on the Nigerian Exchange

Group as at 31st December, 2021. This study covers listed insurance firm because of its

peculiarity and vitality in the financial sector of the Nigerian Exchange Group.

3.4 Sample Size and Sampling Technique

41
 A total number of 10 insurance firm listed on the Nigerian Exchange Group were

purposively sampled because they have readily available information and were fully listed on the

Nigeria Exchange Group.

3.5 Model Specification

The model specification was adopted from ((Eshleman, (2021).

FPit = f(RMP)………………………………………………………………….3.1

FPit = f (RMCS, RMCI, RMCM) ………………………………………3.2

ROAit = ai + βRMCSit + β2RMCIit + β3RMCMit + εit……………………. 3.3

Where: FP = Financial Performance

RMCS = Risk Management Committee Size

RMCI= Risk Management Committee Independence

RMCM = Risk Management Committee Meeting

Β1 – β4 = coefficient of independent variables

εit = error terms of firm i and time t.

42
3.6 Measurement of Variables

The independent variable for this study is risk management practices which was proxied
by Risk Management Committee Size (RMCS), Risk Management Committee Independence
(RMCI), Risk Management Committee Meeting (RMCM). The dependent variable is financial
performance this was proxied by Return on Asset (ROA).
The summary of each variables is shown in Table 3.1

Table 3.1 Measurement of variables

S/N Variables Description Measurement Source

1 Return on Asset This is the amount Profit before Abdul, et al.
of profit generated interest and tax (2021).
by utilizing the divided by total
company’s assets assets
2 Risk Management This is the total Number of Kallamu,
Committee Size number of directors directors sitting (2020)
committed to risk on the risk
management management
function committee.
3 Risk Management This is the extent to Proportion of Chaarani.
Committee which risk nonexecutive (2020)
Independence management directors
committee divided by total
members are free directors on the
from circumstances risk committee
that can impede
their professional
duty
4 Risk Management This refers to the Number of Kallamu
Committee Meeting extent to which the times the (2020)

43
 committee hold committee held
meetings for risk meeting
discussion

3.8 Data Analysis Technique

In other to achieve the objective of the study, data collected were analyzed using

descriptive and inferential statistics. The description statistics show the mean, median, maximum

value, minimum value, skewness, kurtosis and jarque- Bera of the variables. To test for

stationarity condition of unit root test was concluded. Correlation analysis for variables was used

to discover the link between ownership structure and financial performance. This step, together

with the variance inflation factor test was used to check the existence of multicollinearity among

variables. Multiple regression analysis on the panel data was undertaken to investigate the degree

and direction of the variable’s relationship.

44
 CHAPTER FOUR

PRESENTATION ANALYSIS AND DISCUSSION OF RESULTS

This chapter contains the presentation, analysis and interpretation of the data collected for this
study which focus on the financial performance of listed insurance firms in Nigeria. The data
were analyzed using descriptive statistics and inferential statistics. This chapter also discussed
the implication of the findings on the study.
4.1 Descriptive Statistics
The researcher provides some basic information for both the explanatory and dependent
variables of interest. Each variable is described based on the mean, standard deviation, maximum
and minimum. Table 1 displays the descriptive statistics for the study. The mean value of
financial performance as proxied by return on asset (ROA) is 3.60 with a standard deviation of
6.42. Return on asset has a minimum and maximum value of -17.59 and 16.30 respectively. In
the case of the independent variables, the table shows that the mean of risk management
committee size (RMCS) was 4.53 and a standard deviation of 1.36. This implies that on the
average, the insurance firms had 6 members on the risk management committee. Similarly, the
result shows that the mean of risk management committee independence (RMCI) was 63.29 with
a standard deviation of 24.88. The minimum and maximum of risk management committee
independence was 0 and 100 respectively. The table also shows that the mean of risk
management committee meetings (RMCM) was 3.46 and a standard deviation of 0.94. The
minimum and maximum value of risk management committee meetings was 0 and 6. This

45
implies that the risk management committee of the sample insurance firms met 3 times on the
average during the period under study.

Table 4.1: Descriptive Statistics

Variable Obs Mean Std. Dev Min Max

Roa 59 3.60322 6.422339 -17.59 16.3

rmcs 60 4.533333 1.358796 0 8

rmci 60 63.29 24.88031 0 109

Rmcm 60 3.466667 .9471933 0 6

Source: Researcher’s Computation (2023)

4.2 Test of Variables

4.2.1 Correlation Matrix of Dependent and Independent Variables

In examining the association among the variables, the researcher employed the Spearman Rank
Correlation Coefficient (correlation matrix), and the results are presented in the table below.

In the case of the correlation between risk management committee and financial performance,
the above results show that there exists a positive and moderate association between risk

46
management committee independence and financial performance as proxied with return on asset
(0.3697). However, there exists a negative and weak association between risk management
committee size and financial performance as proxied with return on asset (-0.2069. There exists a
negative and weak association between risk management committee meetings and financial
performance as proxied with return on asset (-0.1457). However, to test our hypotheses a
regression results will be needed since correlation test does not capture cause-effect relationship.

Table 4.2: Correlation Analysis of Study Variables

Roa Rmcs Rmci rmcm

Roa 1.0000

Rmcs -0.2069 1.0000

Rmci 0.3697 -0.0931 1.0000

rmcm -0.1457 0.3171 0.1085 1.0000

Source: Researchers’ Computation (2023)

4.2.2 Normality Test

In statistics, normality tests procedure is used to determine if a data set is well-modeled by

a normal distribution and to compute how likely it is for a random variable underlying the data
set to be normally distributed. As noted by Ord (1972), although towards the end of the
nineteenth century 'not all were convinced of the need for curves other than the normal' (Pearson,
1905), but by the turn of the century most informed opinion had accepted that population might
be non-normal. This naturally led to the development of tests for the normality of observations.

47
Here, the rule of thumb states that if the probability value of the variable of interest is significant
at 1% or 5% then the variable is normally distributed otherwise not. In the literature several
statistical tools have been developed to conduct the test for normality of residua. But this study,
align with prior related studies of Farrel and Stewart (2006); Keskin (2006) and Razali, who
concluded that Shapiro-Wilk test is the most powerful normality test technique since it
consistently proved to have lowest total rank from when n = 10 until n = 5000. The normality of
residua test is shown in the table below.

From the table below, it is observed that the dependent variable of financial performance as
proxied by return on asset (prob>z = 0.00038) is not normally distributed since the probability of
the z-statistics as reveal by the Shapiro-Wilk test is significant at 5% significant level. The same
can be said of the independent variables of risk management committee size (prob>z = 0.01127),
and risk management committee independence (prob>z = 0.01707) which are all significant at
5% respectively. On the other hand, the result shows that the independent variable of risk
management committee meetings (prob>z = 0.13492) is normally distributed since the
probability of the z-statistics as reveal by the Shapiro-Wilk test is not significant at either 5% or
1% significant level. However, the researcher proceeds with the ordinary least square regression
but carefully interpreting the probability statistics against the t-statistics.

Table 4.3: Normality of Residua Test

Variable Obs W V Z Prob>z

Roa 59 0.91104 4.771 3.365 0.00038

rmcs 60 0.94699 2.881 2.281 0.01127

rmci 60 0.95084 2.672 2.118 0.01707

rmcm 60 0.96931 1.668 1.103 0.13492

Source: Researchers’ Computation (2023)

4.2.3 Multicollinearity Test

Multicollinearity can mainly be detected with the help of tolerance and its reciprocal, called
variance inflation factor (VIF). Specifically, as indicated in the table above, a mean VIF value of

48
1.18 shows that the mean VIF is within the benchmark value of 10, this indicates the absence of
multicollinearity, and this means no independent variable should be dropped from the model.

4.2.4 Test for Heteroscedasticity and Auto-Correlation

The study conducts this test by employing the Breusch Pagan module in Stata 14. Specifically,
the assumption of homoscedasticity states that if the errors are heteroscedastic then it will be
difficult to trust the standard errors of the least square estimates. Hence, the confidence intervals
will be either too narrow or too wide. The result obtained from the regression of the model as
shown in the table above reveals that the probability value of the heteroscedasticity test is
significant at 1% level {0.09 [0.7678]}. This result indicates that the assumption of
homoscedasticity has not been violated. Hence, the results of the OLS regression appear to be
appropriate statistically for policy interpretation and recommendation.
4.2.5 Panel Unit Root Test of the Variables

Specifically, to examine the effect of the independent variables on the dependent variables as
well as to test the formulated hypotheses, panel fixed, and random regression analysis is
employed since the results reveal the presence of heteroskedasticity. However, results from panel
fixed and random regression and those from the Panel Least Square regression analysis are
presented and discussed below. From the table it is observed from the pool OLS regression that
the R-squared value of 0.2738 shows that about 27% of the systematic variations in the financial
performance of listed insurance firms in Nigeria was jointly explained by the independent
variables in the model. This implies that about 73% of the changes in financial performance as
the dependent variable could not be explained by the variables. The unexplained part of financial
performance can be attributed to the exclusion of other independent variables that can affect
financial performance as the dependent variable but were captured in the error term.
Furthermore, the F-statistic value of 41.46 and the associated p-value of 0.0000 shows that the
specified model on the overall is statistically significant at 1% level. This means that the
regression model is valid and can be used for statistical inference. However, the study conducts
some post regression tests to further ascertain the validity of the pool OLS regression. These tests
include multicollinearity and heteroscedasticity.

Table 4.4: Panel Unit Root Test

49
 Variable Obs W V z Prob>z
Roa 59 0.91104 4.771 3.365 0.00038
Rmci 60 0.94699 2.881 2.281 0.01127
Rmci 60 0.95084 2.672 2.118 0.01707
rmcm 60 0.96931 1.668 1.103 0.13492

Source: Researchers’ Computation (2023)

4.3. Effect of financial performance of listed insurance firms in Nigeria

In this study, we find that the variable of risk management committee meetings appears to
insignificantly influence the financial performance of listed insurance firms in Nigeria. The
results also shows that risk management committee size and risk management committee
independence have a significant effect on the financial performance of listed insurance firms in
Nigeria.
Specifically, in terms of risk management committee size, we disagree with researchers like
Rashid, Ibrahim, and Othman (2012) who said that large committee size would facilitate more
skills, vast experiences, and diverse knowledge in handling the enterprise wide-away of risks.
More so, Dalton, Daily, Johnson & Ellstand (1999) established that large boards offer better
advice to management. While Pearce and Zahra (1992) are of the opinions that a larger board
size enhances a company’s ability to understand and respond to diverse stakeholders and are
tougher to manipulate as compared to boards with small size. In other words, when the risk
management committee is composed of large number of memberships, it will afford the
committee the more opportunity for oversight function alongside various skills and expertise
selected into the large sized committee. However, we align our results to some views that smaller
board size function better by facilitating shorter communication distance among the small
members and ultimately this increase efficiency of the board in decision making (Sanda, Garba
& Milailo, 2011). Khalik & Md. Sum, (2019) suggest that smaller committee size are more
effective in monitoring managerial practices; while larger board sizes are more difficult to
coordinate and may become problematic with communication and organization and may develop
factions which might mare corporate objective.

50
Table 4.5 Fixed effect regression
Roa Coef. Std. Err t P>[t] [95% Conf. Interval]
rmcs -.080912 .0305753 -2.65 0.021 -1.464856 1.303032
rmci .0557279 .0140585 3.96 0.000 -.0125269 .1239828
rmcm -1.380142 .9859378 -1.40 0.167 -3.356006 .5957213
_cons 5.219325 3.914607 1.33 0.188 -2.625724 13.06437
F-Statistics: {41.46 (0.0000)}; R-Squared: 0.2736; Mean VIF: 1.18; Hettest: {0.09 (0.7678)}

Source: Researcher’s Computationm (2023)

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

This chapter discusses the summary of the study, followed by the conclusion of the
research findings in relation to the objective of the study, recommendations; contribution to
knowledge was also suggested by the researcher.

5.1 Summary
The study examines the effect of risk management committee on financial performance in
Nigeria employing samples from listed insurance firms that are listed on the floor of the Nigerian
Exchange Group for the period 2016-2021. In this study, risk management committee size
(RMCS), risk management committee independence (RMCI), and risk management committee
meetings (RMCM) are the risk management committee proxies employed to examine their effect
on financial performance measured in terms of return on asset (ROA). In testing for the effect of
the independent variables of interest on the financial performance of listed insurance firms in
Nigeria, the researcher conducts Pool Least Square Regression analysis then proceed to check
(diagnose) for inconsistencies with the basic assumptions of the Least Square Regression
estimation technique. Succinctly, the diagnostics tests include test for multicollinearity as well as
test for heteroscedasticity. The researcher also performs some preliminary regression analysis to

51
include descriptive statistics, correlation matrix and normality of residua test. A critical
examination of all the diagnostic test revealed that the model failed the normality assumption of
the OLS estimates. However, the researcher carefully interprets the p-value of the OLS
regression. Particularly.

The following findings were revealed in the study:

i. Risk management committee size {-0.081 (0.021)} as an independent variable to

financial performance as proxied by return on asset appears to have a negative and
significant effect on financial performance.
ii. Risk management committee independence {0.056 (0.000)} as an independent variable to
financial performance as proxied by return on asset appears to have a positive and
significant effect on financial performance.
iii. Risk management committee meetings {-1.380 (0.167)} as an independent variable to
financial performance as proxied by return on asset appears to have a negative and
insignificant effect on financial performance.
5.2 Conclusion 
Risk Management Committee (RMC) is an autonomous board of directors committee which, as
its primary and exclusive role, is responsible for the risk management policies of the global
operations of the company and oversees the implementation of the global risk management
system of the organization. The committee will help the board of directors in carrying out its
regulatory duties regarding the corporation's risk tolerance and the risk control and enforcement
process and the governance system that governs it. Risk tolerance is the amount and type of risk
that a company is capable of and ready to bear in its risks and market practices, despite its
corporate priorities and stakeholder responsibilities. The prediction of poor financial
performance is absolutely vital for traders, creditors, and suppliers. To avoid any financial loss,
they need to assess the financial risk of a firm before they make any decisions. Overall, the
empirical findings of this study are mixed in proving the effect of risk management committee
on financial performance. We conclude that only the variable of risk management committee size
and independence appears to significantly influence the financial performance of listed insurance
firms in Nigeria.

5.3 Recommendations

52
The following recommendations are suggested based on the findings:

i. It is recommended that that policies that will increase the independence risk management
committee should be considered.
ii. Too many risk committee meetings initiates huge cost for the company
iii. Time resources are also being wasted as resourceful outcomes are not met. Furthermore,
concerned policy makers should come up with a framework of risk management
committee size that fits a firm’s operations.

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Dalton, D.R., Daily, C.M., Johnson, J.L. & Ellstand, A. 1999. `Number of directors and financial
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55
 APPENDICES

APPENDIX A: STATA RESULTS

___ ____ ____ ____ ____ (R)

/__ / ____/ / ____/
___/ / /___/ / /___/ 14.0 Copyright 1985-2015 StataCorp LP
Statistics/Data Analysis StataCorp
4905 Lakeway Drive
MP - Parallel Edition College Station, Texas 77845 USA
800-STATA-PC http://www.stata.com
979-696-4600 [email protected]
979-696-4601 (fax)

Single-user 8-core Stata perpetual license:

Serial number: 10699393
Licensed to: Idorenyin Okon
IdRatios Nigeria

Notes:
1. Unicode is supported; see help unicode_advice.
2. Maximum number of variables is set to 5000; see help set_maxvar.

Source | SS df MS Number of obs = 59

-------------+---------------------------------- F(3, 55) = 1.46
Model | 175.959377 3 58.6531257 Prob > F = 0.2367
Residual | 2216.33371 55 40.2969766 R-squared = 0.0736
-------------+---------------------------------- Adj R-squared = 0.0230
Total | 2392.29309 58 41.2464326 Root MSE = 6.348

------------------------------------------------------------------------------
roa | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
rmcs | -.080912 .0305753 -2.65 0.021 -1.464856 1.303032
rmci | .0557279 .0140585 3.96 0.000 -.0125269 .1239828
rmcm | -1.380142 .9859378 -1.40 0.167 -3.356006 .5957213
_cons | 5.219325 3.914607 1.33 0.188 -2.625724 13.06437
------------------------------------------------------------------------------

Variable | VIF 1/VIF

-------------+----------------------
rmcm | 1.27 0.787452
rmcs | 1.22 0.822406
rmci | 1.05 0.952925
-------------+----------------------
Mean VIF | 1.18

56
Breusch-Pagan / Cook-Weisberg test for heteroskedasticity
Ho: Constant variance
Variables: fitted values of roa

chi2(1) = 0.09
Prob > chi2 = 0.7678

Variable | Obs Mean Std. Dev. Min Max

-------------+---------------------------------------------------------
roa | 59 3.60322 6.422339 -17.59 16.3
rmcs | 60 4.533333 1.358796 0 8
rmci | 60 63.29 24.88031 0 100
rmcm | 60 3.466667 .9471933 0 6

Shapiro-Wilk W test for normal data

Variable | Obs W V z Prob>z

-------------+------------------------------------------------------
roa | 59 0.91104 4.771 3.365 0.00038
rmcs | 60 0.94699 2.881 2.281 0.01127
rmci | 60 0.95084 2.672 2.118 0.01707
rmcm | 60 0.96931 1.668 1.103 0.13492

| roa rmcs rmci rmcm

-------------+------------------------------------
roa | 1.0000
rmcs | -0.2069 1.0000
rmci | 0.3697 -0.0931 1.0000
rmcm | -0.1457 0.3171 0.1085 1.0000

57
APPENDIX B: DATASET EMPLOYED

YEARS COMPANIES ROA RMCS RMCI RMCM

2016 Custodian Investment 7.83 5 100 4
2017 Custodian Investment 8.14 5 100 4
2018 Custodian Investment 7.25 5 100 4
2019 Custodian Investment 5.09 5 100 4
2020 Custodian Investment 7.26 5 80 4
2021 Custodian Investment 5.51 4 100 4
2016 Sunu Assurance 0 5 60 4
2017 Sunu Assurance 0.05 7 57.14 4
2018 Sunu Assurance -0.34 8 50 4
2019 Sunu Assurance -2.02 7 57.14 4
2020 Sunu Assurance 7 71.43 4
2021 Sunu Assurance 1.96 8 75 4
2016 Sovereign Trust 0.25 4 50 2
2017 Sovereign Trust 1.4 5 60 4
2018 Sovereign Trust 3.04 6 66.67 3
2019 Sovereign Trust 3.75 6 66.67 3
2020 Sovereign Trust 4.64 5 80 2
2021 Sovereign Trust 5.94 5 60 3
2016 Regency Aliance Ins 7.22 4 50 3
2017 Regency Aliance Ins 2.96 3 66.67 3
2018 Regency Aliance Ins 2.77 3 66.67 3
2019 Regency Aliance Ins 6.91 3 66.67 3
2020 Regency Aliance Ins 4.63 3 66.67 2
2021 Regency Aliance Ins 2.72 4 50 2
2016 Prestige Assurance -1.22 4 50 2
2017 Prestige Assurance 4.52 4 50 3
2018 Prestige Assurance 3.25 5 60 3
2019 Prestige Assurance 3.28 5 60 3
2020 Prestige Assurance 3.67 4 75 4
2021 Prestige Assurance 3.19 4 75 3
2016 Nem Insurance 12.54 3 33.33 1
2017 Nem Insurance 15.8 4 75 3
2018 Nem Insurance 8.38 4 75 3
2019 Nem Insurance 9.33 4 75 3
2020 Nem Insurance 16.3 4 75 3
2021 Nem Insurance 11.59 4 75 2
2016 Cornerstone Insurance -8.09 4 100 5
-
2017 Cornerstone Insurance 13.96 3 100 4
2018 Cornerstone Insurance 10.51 3 100 4
2019 Cornerstone Insurance 11.69 3 100 4
2020 Cornerstone Insurance 5.01 3 100 4
2021 Cornerstone Insurance 7.17 4 100 4
2016 AxaMansard 4.79 5 40 4
2017 AxaMansard 4.02 4 25 4
2018 AxaMansard 3.36 4 25 4
2019 AxaMansard 3.15 4 25 4
2020 AxaMansard 6.39 6 16.67 4
2021 AxaMansard 3.59 0 0 0
2016 Aiico 13.21 5 60 4
2017 Aiico 1.39 5 60 4

58
2018 Aiico 0.29 6 50 4
2019 Aiico 3.71 6 50 4
2020 Aiico 2.05 6 50 4
2021 Aiico 1.15 6 66.67 4
2016 African Alliance Insurance 6.67 4 25 6
-
2017 African Alliance Insurance 14.26 4 50 3
2018 African Alliance Insurance -6.52 4 50 4
-
2019 African Alliance Insurance 17.59 4 50 4
2020 African Alliance Insurance 10.07 4 75 4
2021 African Alliance Insurance -2.8 4 0 4

59