The Impact of Financial Risk on Financial Performance: A Case of Listed Manufacturing Companies in Tanzania

Abstract

The study assessed the impact of financial risk on the financial performance of listed manufacturing firms in Tanzania at the Dar es  Salaam Stock Exchange (DSE). Proxies used to represent financial risk, as independent variables, were credit risk and liquidity risk, and  financial performance metrics were return on assets (ROA) and return on equity (ROE). A quantitative research design was used to gather  secondary data from audited financial statements of listed manufacturing firms at DSE from 2008 to 2022 (15-year period). The  balanced panel regression model was used to test the hypotheses by using Stata 11 software as a tool for analysis. The result reveals that  liquidity risk exerts a positive and significant impact on ROA. In contrast, credit risk exerts a negative and significant impact on ROE.  These findings highlight the importance of enhancing risk management practices and prudential oversight to safeguard a manufacturing  firm’s financial performance. The analysis may assist investors, both current and prospective, government officials,  financial managers, brokers, and the authority dealing with investments in the manufacturing companies listed under DSE to formulate  policies and analyze their investments to increase value to stakeholders and look for a better way of stabilizing the economy of these   companies and the national economy in general.