How does risk management contribute to firm financial performance? Among banks in Kenya

Abstract

The objective of the study is to examine the effect of risk management on firm financial performance among banks in Kenya. The study was guided by balance scorecard model. The study took a positivism position which maintains that observation and reason are the best means of understanding events. The study made use of an explanatory research design. The study used this approach to explain and identify the cause-and-effect relationship between risk management and firm financial performance. The target population for this study was 42 banks in Kenya and 35 banks were surveyed after the inclusion exclusion criteria. Secondary data from annual audited financial reports for the sampled banks for the periods 2013 to 2019 were used to meet the objectives of the study and Data collection schedule was used to extract data from bank annual reports. The data was analyzed using both descriptive and inferential statistics. The risk management regression results revealed a positive and significant effect on firm financial performance (= 40.18176, p= 0.000). This means that increasing risk management strategies by one unit improved bank financial performance by 40.18176 units. The practical implications of the positive and significant effect of risk management strategies on firm financial performance emphasize the importance of prioritizing risk management practices within banks. By adopting robust risk management frameworks, banks can enhance their financial stability, competitive advantage, regulatory compliance, strategic decision-making, investor confidence, and overall performance in the market. Continuous improvement in risk management practices is essential to adapt to evolving risks and maximize long-term financial success. Therefore, enhancing risk management practices can positively impact the overall financial health and success of the organization.