LIQUIDITY AND CAPITAL RISK IN THE CONTEXT OF FINANCIAL RISK MANAGEMENT: A RESEARCH ON THE PUBLICLY TRADED CEMENT COMPANIES IN NIGERIA

Abstract

Financial risk management is the process of understanding and managing financial risks that a company has the potential to face in the future. In the modern approach, a holistic management process is recommended instead of treating risks independently from each other. However, in order to manage the risks, the components that make up the financial risks must also be identified. Liquidity risk and capital risk are among the most important of these components, and they play a more critical role in industrial enterprises that require significant investment in fixed assets. In this context, this thesis focuses on the management of these risks in industrial companies. The research aims to analyse the liquidity and capital risks in the non-metallic mineral industry in Nigeria, which is the most populous country and has the highest GDP in Africa. The scope of the research consists of the cement companies listed on the Nigerian Stock Exchange (NSE). Companies operating in this industry contribute not only to the economy of Nigeria, but also to the economies of those countries with their many production facilities in West, Central and South Africa. The time period of the research is from 2011 to 2020, in this respect, it covers the recovery period after the 2008 crisis as well as during Covid-19 pandemic. Since the data of some companies could not be reached in the relevant years, an unbalanced panel data set was created. All data used in the study were collected from the audited annual reports of the companies. The research findings point to a trend towards a decrease in both liquidity and capital risk in the sector examined. However, the findings show that there are still significant risks in the industry, especially in the context of liquidity risk - which are iii measured by three different parameters. Although there is an increase in capital risk in the Covid-19 pandemic, it is seen that these risks of companies are at a manageable. The industry analysed in the research continued both its activities and growth, unlike the service sector, which suffered significantly in the pandemic. In the econometric analysis part of the research, the determinants of liquidity and capital risks were investigated and their effects on financial performance were emphasized. Finally, recommendations for managing these risks and expectations for the future of the sector are also presented in the thesis