Canadian Social Science
Assessment of Financial Risk and Its Impact on an Informal Finance Institutions Profitability
Abstract
This study examined the connection between financial risk and the profitability of informal financial institutions in Ondo state, Nigeria. Theory assumes risk to have a negative relationship with profitability; however, some studies have proved otherwise. This study used Anuoluwapo cooperative society located in Akure, over a quarterly 5-year period spanning 2015Q1 to 2020Q4. To assess the relationship between financial risk & profitability, the study employed the Pearson correlation to analyse the level of correlation. In assessing the relationship between financial risk & profitability, a data regression model was also used. The correlation coefficients for the variables were positive (+1) & negative (-1). The significance showing a clear indication that there is a strong correlation between financial risk & profitability in Anuoluwapo Cooperative Society. The data regression model shows that P value (0.00) is greater than 0.05; there is an insignificant but positive relationship between the profitability & the financial risk of Anuoluwapo Cooperative Society. This implies that the test considered the random effect model as the most appropriate estimator. The study found out that a unit increase in financial risk would lead to an increase in profitability. From the finding, the study concludes that financial risk positively affects profitability of Anuoluwapo Cooperative Society. The study suggests that since a high level of risk, yield high returns, the process of dealing with risk should be continuous & developing with time.
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DOI: http://dx.doi.org/10.3968/12428
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