CHAPTER ONE

INTRODUCTION

1.1 Introduction

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.

1.8 

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