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Financial management is one of the several functional areas of management and one of the key variables necessary for the success of any business. Inefficient financial management, combined with the uncertainty of the business environment often lead Business Enterprises in to serious problems. According to Kawame (2010), careless financial management practices are the main causes of failure of business enterprises in Africa. Regardless of whether an owner-manager or hired manager, if the financial decisions are wrong, performance of the company will be adversely affected (Allis, 2004). Consequently, a business organization’s performance could be damaged because of inefficient financial management. Business Enterprises have often failed due to lack of knowledge of efficient financial management.
An ideal business needs sufficient resources to keep it going and ensures that such resources are maximally utilized to enhance its profitability and overall performance. Financial management and its Impact on Firms’ Performance has been studied significantly by different researchers (Padachi, (2006); Finau, (2011); Anand and Gupta, (2002); Mohamad and Noriza, (2010); Deloof, (2003); Luo, (2009).
Most of these and other researchers identify significant association between Financial management and firms’ performance. It has however been discovered that some methods that managers use in practice to make Financial management decisions do not rely on the principles of finance, rather they use vague rules of thumb or poorly constructed models (Emery, Finnerty and Stowe, 2004). This, however, makes the managers not to effectively manage the various mix of financial management component which is available to them, and as such, the organization tend to perform poorly. Egbide (2009) find that large number of business failures in the past has been blamed on the inability of the financial manager to plan and control the financial management practices of their respective firms.
Financial management and performance are two important and major aspects of corporate business life (Vataliya, 2009). The problem is that increasing profits at the cost of financial practices can bring serious problems to the firm. Therefore, there must be a trade-off between these two objectives (financials management and performance) of firms. One objective should not be at the cost of the other because both have their own importance. If firms do not care about performance, they cannot survive for a longer period. In other round, if firms do not care about financial management, they may face the problem of insolvency or bankruptcy. For these reasons managers of firms should give proper consideration for financial management as it does ultimately affect the performance of organisation. As a result company can achieve maximum performance and can maintain high efficient financial management practice.
Financial management is very critical in ensuring that organisation remain solvent. Meeting financial obligations reflects that organisation are entitled to continuity. The world is changing at an alarming rate prompting new challenges in financial management resonate with record keeping, regulatory compliance, borrowing arrangements, financial analysis, financial reporting and operational funding (Amran, 2005).
1.2 STATEMENT OF THE PROBLEM
Inefficient financial management may damage business enterprise’s performance (Gebrehiwot and Wolday, 2006). The efficient financial management is a fundamental part of the overall corporate strategy to create shareholders value (Nazir and Afza, 2008). In addition, efficient financial management leads to improve the operating performance of the business concern (Paramasivan and Subramanian, 2009). Therefore firms try to keep an optimal level of financial management practice that maximizes their value (Deloof, 2003). In addition to that, the effective financialmanagement is very important because it affects the performance of organisation (Taleb, 2010).
Therefore, it is a significant issue to know and understand the impacts of financial management on firms’ performance. Also, several research works have identified the impact of financial management on the performance of organizations, but no significant work appears to have been done on the impact of financial management on the performance of insurance company in emerging economics like Nigeria. This limited evidence in the context of Nigeria along with the importance of financial management invite for research on their impacts on firms’ performance. Considering the above points, the general objective of the study will be to examine the impacts of financial management on the performance of insurance companies in Nigeria.
1.3 OBJECTIVES OF THE STUDY
This study assessed the impact of financial management on performance in insurance companies in Nigeria. In order to achieve this main objective, this study developed the following specific objective:
1. To examine the impact of financial management on performance in insurance companies.
1.4 RESEARCH QUESTION
The research problem defined above leads to the following research question:
1. Does financial management have impact on performance in insurance companies?
1.5 RESEARCH HYPOTHESIS
The research question defined above leads to the following research hypothesis in its null form:
1. HO1: Financial management has no significant impact on performance in insurance companies.
1.6 SIGNIFICANCE OF THE STUDY
The importance of this study cannot be overemphasized due to the fact that, it holds a lot of benefit to ensure continuous existence and survival of organizations. In addition, the study clarifies the argument on weather effective financial management adds value to organizational activities, which will enable organizations take profitable side on whether to take performance serious or not. The findings of the current study may help identify gaps within the insurance companies. Consequently, the research findings may be important in addressing these gaps.
The findings may also be of invaluable benefits to the management and those charged with management since they are bound to enable them maximize the organisation performance. Ultimately, the findings are likely to ensure improved performance and also attainment of organizations’ objectives. The study may also add to the existing knowledge regarding performance and financial management particularly in the insurance sector. The study may generate knowledge to link performance and financial management which may guide policy makers in the planning for the organisation resources. The findings of the study may be helpful to all academicians in finance and accounting, management, legal, and other pertinent fields.
1.7 SCOPE OF THE STUDY
This research work is undertaken to analyse the role and impact of financial management on control in Insurance Companies the study of LeadwayAssurance Company Plc. The study covers the entire staff of LeadwayAssurance Company Plc. Leadway Assurance was chosen because no such study was ever carried out on the firm.
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