Risk Dimensions in Business Processes in Nigeria: A Comparative Study of the Nigerian Banking and Insurance Sub-Sectors between 1999 and 2006

Abstract

This paper examines the dimensions of risk in the Nigerian Business environment with the objective of identifying the various types of risks facing the businesses operating in Nigeria. Empirical data for the paper was secondary and collected from the Kaduna branch of the Nigerian Stock Exchange based on the actual information published by the organizations studied. The Linear Regression (Ordinary Least Squares (OLS)) method was used to analyze the data and compute the various parameters of the model. It was found that the return of individual banks in Nigeria is less volatile than the market return while the return of individual insurance companies in Nigeria is more volatile than the market return; The return of individual insurance firms in Nigeria is more volatile than the return of individual banks in Nigeria. The security variance for a bank is greater than the security variance for an insurance firm. Thus the total risk of a bank is greater than the total risk of an insurance firm in the Nigerian business environment. The paper recommends, among other things, that the Nigerian government should align public policy formulation and implementation frameworks in line with the basic needs of the domestic economy necessitating embarkment on a comprehensive economic reform programme based on a home-grown strategy, the National Economic Empowerment and Development Strategy (NEEDS). There is also the need for the enhancement of private sector investment rate through a combination of macroeconomic stabilization, financial sector deepening, improved governance and accountability and more openness to trade.

This paper as presented at the Conference Proceedings of the Maiden International Conference of the Department of Management Sciences of the University of Jos, Jos, Nigeria

Keywords: Business Environment, Systematic Risk, Unsystematic Risk, Market Return, Beta, Market

JEL Classification: G10, G11,G12, G13, G14, G21, G22