The Role of Risk-taking on Performance of Firms on Nigerian Stock Exchange

Abstract

This paper examines the role of risk-taking on performance of firms on the Nigerian Stock Exchange. The paper is designed to look at the role of risk-taking on performance of firms on the Nigerian Stock Exchange. The paper took critical interest in the contents of a number of studies which concluded that among Nigerian managers, lack of innovation and pro-activeness, aggressiveness, aversion to risk-taking, which are critical factors for growth of SMEs, were found to be high in 2007.The target population is 176 firms listed in the Nigerian Stock Exchange with financial returns as at August, 2014. Out of the population, a sample of 60 firms was taken. Methods of statistical analyses include mean, standard deviation, and Pooled, Random and Fixed regression models based on the preferences suggested by the Hausman specification test results. The results of panel analysis of the relationship between Entrepreneurial Orientation dimension – risk-taking, and performance of firms listed on Nigerian Stock Exchange, with returns on assets and returns on equity as proxy showed a negative relationship between risk-taking and returns on assets and risk-taking and returns on equity. This result confirms a study conducted in 2007 in Nigeria on 88 SMEs earlier mentioned. And, it also negates the outcome of a study carried out among Kenya’s manufacturing firms operating under the EAC in 2012, which showed that there existed a positive relationship between entrepreneurial orientation adoption and firm performance. Risk-taking was found to have negative relationships with both returns on assets and returns on equity. The implication of this study result is that, in Nigeria, entrepreneurial orientation dimensions such as risk-taking has been widely adopted and practised, but it was yet to relate to ROA and ROE positively.