FINANCIAL RISK MANAGEMENT IN MULTINATIONAL CORPORATIONS

Abstract

The research explored the impact of financial risk management practices on the profitability of multinational corporations (MNCs), with a specific focus on risk identification (RI), risk monitoring (RM), risk analysis and assessment (RAA), the debt-equity ratio (DE), and the turnover to total assets ratio (TAR). Using a combination of primary data from 50 employees and secondary data from annual reports spanning seven years, the study evaluated the influence of these practices on return on equity (ROE). The research adopted a descriptive and causal comparative research design, analyzing responses from employees regarding risk management and calculating key financial ratios from the annual reports of ten MNCs. The findings reveal that certain risk management practices have a significant effect on profitability. Specifically, risk monitoring (RM) and turnover to total assets ratio (TAR) demonstrate a positive and statistically significant impact on ROE, indicating that better monitoring systems and more efficient asset utilization can enhance profitability. On the other hand, risk identification (RI) and risk analysis and assessment (RAA) have a negative impact on ROE, suggesting that excessive focus on identifying and analyzing risks may hinder profitability. The debt-equity ratio (DE), however, was found to have no significant effect on profitability in this context. The study concludes that while risk management practices are crucial, MNCs must balance their approach, especially regarding risk identification and analysis, to avoid diminishing returns. The research contributes to the theoretical understanding of financial risk management by highlighting the differential effects of various practices on profitability. It also offers practical insights for MNCs, emphasizing the need for efficient risk monitoring and asset management to achieve financial success.