The Impact of Financial Risk on Financial Performance: A Case of Listed Manufacturing Companies in Tanzania

Abstract

The study assessed the impact of financial risk on the financial performance of
listed manufacturing firms in Tanzania at the Dar es Salaam Stock Exchange
(DSE). Proxies used to represent financial risk, as independent variables, were
credit risk and liquidity risk, and financial performance metrics were return on
assets (ROA) and return on equity (ROE). A quantitative research design was
used to gather secondary data from audited financial statements of listed
manufacturing firms at DSE from 2008 to 2022 (15-year period). The balanced
panel regression model was used to test the hypotheses by using Stata 11 software
as a tool for analysis. The result reveals that liquidity risk exerts a positive and
significant impact on ROA. In contrast, credit risk exerts a negative and
significant impact on ROE. These findings highlight the importance of enhancing
risk management practices and prudential oversight to safeguard
a manufacturing firm’s financial performance. The analysis may assist investors,
both current and prospective, government officials, financial managers, brokers,
and the authority dealing with investments in the manufacturing companies listed
under DSE to formulate policies and analyze their investments to increase value
to stakeholders and look for a better way of stabilizing the economy of these
companies and the national economy in general