Academic journal article Asian Social Science

Measurement the Impact of Financial and Business Risk on Performance: Evidence of Industrial Sector of Oman

Academic journal article Asian Social Science

Measurement the Impact of Financial and Business Risk on Performance: Evidence of Industrial Sector of Oman

Article excerpt

Abstract

This paper aims to analysis the impact of financial and business risk on performance in ten industrial sector of Sultanate of Oman. The population is 47 firms from the period 2009 to 2013. The results indicate there is a statistical significant impact of earnings growth at business risk on performance at significant level 5% and current ratio and financial leverage at financial risk on performance at significant level 1%. The multiple regressions show there is a significant impact of all business and financial risk variables on performance at significant level 10%. The stepwise regression also shows that the financial risk related to current ratio variable between all independent variables is a significant impact on performance at significant level 1%. The researcher recommends to promotion exploit the political stability and strong relations with other countries to increase the size of international trade exchange and minimize the risk of investments and encourage local workforce in contributing to the gross domestic product and employment.

Keywords: financial risk, business risk, performance, industrial sector

1. Introduction

The decision-making process of firms need the information to analysis all the problems that surround the firm, whether internal or external, and thus the investor needs information to evaluate the investments and often relies on the study of horizontal time series to interpretation the events of the future. Many firms in the process of evaluating internal risks such as financial risk and business risk or operational risk, where the financial risk definition, a risk which includes financial position and how assets and liabilities management of either risk but the operational or business risk related to production process or daily (operational) processes, which can be add value and competitive advantage over other processes. In addition, the financial statements constitute important data to the investor for adoption in the evaluation of investments through financial figures and analysis to clarify the firm's image and financial position in the market. The recent global financial crisis was a vital example of the risk that the world has seen as many of the states lost earnings as a result of the collapse of certain global markets and business dealings that have become limited because poor liquidity where it became necessary attention dramatically in risk measurement (Cruz, 2002).

Each firm is different in the estimation of the risk and different nature of their work and their circumstances and the success or failure of firms depends on the extent to accept the risk. The firms try to reduced risk where institutional innovation includes resolutions different risks so that the risk may have positive effects in increasing the return and opportunities which will reflect positively on increasing shareholder wealth. Risk is mean a difference between the actual event and expected as firms try to reduce the risk to a minimum through the prediction of the event and find strategic alternatives as the acceptance of a specific percentage of risk depends on the personal characteristics of the owners, for example, shareholders have the advantage to take the risk in accepting investment projects or reservation policy defensive investment projects to enter each of these strategies depends on the possibilities available to companies and financial strength (Raei, 2011).

The purpose of this study came from that the industrial sector of Oman is witnessing lately a significant evolution due to changes of oil prices, which are an important source of revenue of the government which led to a decline in revenues in the public budget, which draw attention to promote interest and diversify the industrial sector resources and support to get to the high numbers of earnings, through which the economy national to achieve significant growth, but this thing is peppered many of the operational and financial risks at the corporate level and that may variations of the performance. …

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