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Research Article
Research Article Open Access

Enterprise Risk Management and the Survival of Small Scale Businesses in

Nigeria
Kehinde A*, Opeyemi A, Benjamin A, Adedayo O and Abel OA
Department of Accounting, Covenant University, Ota, Nigeria

Abstract
Small scale enterprises are catalysts and engine room for economic growth and development as demonstrated
by the achievements recorded by Chinese industrialists and other developed nations. Over the years, the rate at
which small scale businesses are collapsing in Nigeria is quite alarming due to poor approach to risk management.
The economic development of any nation most especially developing economies is instituted on the survival of small
scale industries. Small scale industries in Nigeria are fundamentally different from other nations of the world in terms
of nature and structure. Many researchers have identified various risks such as financial, strategic, hazard etc. risks
militating against the growth of small scales industries which the implementation of enterprise risk management
has helped in addressing without due consideration to risk oversight of an appointed risk expert. This paper which
employed secondary data sourced from various journals and other publications and used Ordinary Least Square
(OLS) in the analysis and testing of hypotheses identified and advocated for the implementation of risk oversight as
panacea for enduring and survival of small scale businesses in Nigeria. It has been recommended that in order to
appropriate the full benefits of risk oversight concept, the SMEs managers must embrace transparency, adequate
maintenance of proper books of account and readiness to implement all the recommendations of the professional
or risk experts.

Keywords: Enterprise risk management; Small scale business/ most especially small scale businesses are finding it difficult to survive.
enterprise; Risk oversight The business gurus, professionals and scholars opined that one of the
difficult tasks to engage in is the establishment of small scale businesses
Introduction most especially in a harsh environment like Nigeria and its survival in
Every business manager must have the necessary assurance on the the first five years. They therefore concluded that short and long term
possible growth and survival of enterprises being embarked upon after strategies should be developed with a view to guiding against failures
all the risks must have been factored in and adequately evaluated [1- [13,14]. In 2016, the Central Bank of Nigeria (CBN) foreign exchange
3]. The setting up of a business enterprise in Nigeria calls for proper policy placed restrictions on forty-one items which forced 272 firms,
evaluation of the peculiarity of risks facing the country which can only 50 manufacturing companies inclusive, out of business. The remaining
be appreciated through the clear understanding of the structure of her 222 firms are small scale businesses which led to 180,000 job losses
economy [4]. Nigeria is the most populous country in the continent [15]. The affected manufacturers relocated to neighboring countries
of Africa. She is the major and largest exporter of oil in the continent according to the Manufacturers Association of Nigeria (MAN) and
and her economy is basically agrarian irrespective of the achievement this development actually paints gloomy picture for economic growth
recorded in oil sector. It is not an understatement that agriculture of Nigeria [16].
has been the dominant sector of the Nigerian economy for decades. Many industrialists, business experts and professionals are of
During the pre-independence the contribution of agriculture to Gross the opinion that businesses failure in Nigeria were orchestrated by
Domestic Product (GDP) was more than 80%. In 1960s agriculture inconsistent economic policy most especially fiscal and monetary
contributed 64% to GDP but suffered a setback in 1970s to 48%. The policies, epileptic power supply with attendant high cost of doing
trend continued in the 80s when the average contribution was 20% business, poor infrastructural facilities, insecurity, lack of access to
which was premised on oil glut. In fact, the crisis in the Nigerian loan facilities and the likes [17]. Though, the enumerated factors are
economy up to the present time is hinged on the total neglect of part of ingredients to facilitate conducive environment for business
agricultural sector in favor of mono-product economy based on oil [5-8]. to strive but most of the times, businesses failed as a result of poor
Nigeria is also characterized with the challenge of economic or non-existence knowledge or failure to implement enterprise risk
policies instability, security issues, poor infrastructure most especially management strategy [18]. The understanding and evaluation of
road network, transportation system and electricity and host of enterprise risk management is fundamental to business success even
others. So, would be investors or entrepreneur either domestic or
international must take into cognizance the Nigeria ‘country risks’ into
consideration with a view to leveraging on them for the benefits of their *Corresponding author: Kehinde A, Department of Accounting, Covenant
University, Ota, Nigeria, Tel: +2347062626776; E-mail: kenadesina@yahoo.co.uk
enterprises [9,10]. Small scale businesses are fundamental and pivotal
to the economic development and transformation of any nation [11]. Received June 02, 2017; Accepted July 03, 2017; Published July 13, 2017
The economy giants of the world such as China and Japan leveraged Citation: Kehinde A, Opeyemi A, Benjamin A, Adedayo O, Abel OA (2017)
on the small and medium businesses to launch their economies to Enterprise Risk Management and the Survival of Small Scale Businesses in
Nigeria. Int J Account Res 5: 165. doi:10.4172/2472-114X.1000165
greatness [12]. In Nigeria, the global economic meltdown which
started in 2007 of which the effect is still biting hard, had led to the Copyright: © 2017 Kehinde A, et al. This is an open-access article distributed
under the terms of the Creative Commons Attribution License, which permits
untimely collapsed of many businesses with the attendant huge losses unrestricted use, distribution, and reproduction in any medium, provided the
of jobs. Currently, the Nigerian economy is in recession and businesses original author and source are credited.

Int J Account Res, an open access journal Volume 5 • Issue 2 • 1000165

ISSN: 2472-114X
Citation: Kehinde A, Opeyemi A, Benjamin A, Adedayo O, Abel OA (2017) Enterprise Risk Management and the Survival of Small Scale Businesses
in Nigeria. Int J Account Res 5: 165. doi:10.4172/2472-114X.1000165

Page 2 of 8

in the midst of economic challenges. This is because ERM does not where he reiterated that risks are embedded in every business venture
only look at the threat but the potentials and opportunities a firm can and that their effective management will dictate the success of the
leverage upon to survive and grow [19,20]. business.
The researcher is of the opinion that many scholars have come up Enterprise Risk Management (ERM) deals with how risks and
with many researches which dwell so much on the effect or contributions opportunities firms are being exposed to are identified, measured,
of market, strategic, human, hazard, financial, operational, and of evaluated, controlled, monitored, reviewed, handled and reported in
course, technological risks on the untimely collapse of small and order to ensure their continuity. It has to do with how business managers
medium businesses in Nigeria. One of the areas they have not been are able to manage the past and current risks and opportunities which
able to address is ‘risk oversight’, an aspect of corporate governance may be internal or external to project the future of their enterprises
which still falls within the purview of enterprise risk management. One for the benefits of the owners and all stakeholders [26]. According to
of the challenges of SMEs in Nigeria is the inability to engage or employ Jacobus, ERM enables managers of small businesses to craft innovative
the right caliber of staff such as internal auditor or control officer, business strategy that encapsulate quality operational planning: that
professional financial accountants etc. as a result of cost. The absence will give birth to efficient and effective management of the firms free
of risk manager in an organization such as SMEs exposes such SMEs from all exceptions [27].
to risks. Therefore, in order to reduce cost and at the same time control
The benefit of ERM is further exemplified by its ability to guard
or reduce risks, such a role can be entrusted into the capable hands of
against the crystallization of expected and unexpected losses thus
a professional accountant or risk expert for timely assessment of risks
providing solid platform for enduring healthy performance in an
and advice on how to avert risk for a fee.
organization. The recent global financial meltdown which is still
This paper therefore is aimed at emphasizing the need for business yet unabated in Nigeria has actually brought to light the managerial
managers in Nigeria to take risk oversight initiative into consideration deficiency and poor risk management practices of business enterprises
in the running and management of their enterprises in order to avert most especially the SMEs [28]. The managers of SMEs ironically believe
untimely collapse. that risk management practices are meant for large corporations.
Likewise, Baker corroborates that ERM initiative is not being leveraged
Literature Review on by SMEs which view it (ERM) as being complex and abstract in
The size and modus operandi of Small and medium scale nature meant only for big corporation with expertise to manage [28].
enterprises (SMEs) have made them vulnerable to various risks. In Nigeria and other developing or emerging economies, the owners
Mwaniki was of the opinion that Small medium scale enterprises are or managers of SMEs should be encouraged and motivated to embrace
exposed to risks as a result of lack of adequate finance, poor accounting ERM concept in order to mitigate avoidable risks likely bringing their
record system, obsolete technology, inexperience, policy instability on business enterprises to a halt or untimely death [29]. The establishment
the part of the government, insufficient capital base, lack of managerial of a good risk management system particularly, ERM, is fundamental
and entrepreneurial capacity and relatively low capacity utilization to the success of any business enterprise and sustainability most
[21]. It has also been pointed out that SMEs without the necessary and especially in a recessionary economic period [30]. As postulated by
sufficient resources couple with relatively small size would not have the Havenga, the ERM as a good risk management system provides the
capacity to manage and control risk thus susceptible to early collapse [22]. following benefits [31]:
• It ensures that all the necessary laws and regulations are strictly
Enterprise risk management
complied with.
It is fundamental in this 21st century for every business organization
• It helps in the identification and management of various
to embrace an integrated approach to risk management in order to
enterprise risks fundamental to the success of an enterprise.
reduce or mitigate risk. This is based on the fact that risks increase as
businesses evolve and promoters must be strategic in their approaches • It serves as barometer through which risks can be understood,
to leverage on the opportunities bring about by the risks for the benefits recognized, measured and reported throughout an organization
of their enterprises [3]. According to David and Desheng, Enterprise for those responsible to take appropriate actions.
Risk Management (ERM) was coined in the mid-1990s to provide
• It provides an avenue for business firms to reduce, minimize
solution for business growth through effective risk management.
and or avoid outright financial losses.
The Casualty Actuarial Society (CAS) maintained that Enterprise
Risk Management is a process through which risks can be measured, ERM is paradigm shift from traditional management of risks being
exploited, governed, financed and monitored from all sources by faced by the 21st century enterprise which intends to improve the
business organizations operating in any sector of the economy with a quality of corporate governance and risk management practices of a
view to increasing the value of shareholders or owners. The Enterprise firm [32]. Beasley, Chen, Nune and Wright are of the opinion that ERM
Risk Management views risks as opportunity exemplified in the overall is very germane in the identification of risks as it affects the efficient
business strategy of an enterprise which must be identified, measured, and effective management of a firm holistically rather than being
responded to, prevented and monitored. This position is different from managed independently [33]. As a result of the different sizes, nature
the traditional risk management which considers risk as a threat [20]. and complexities of an organization couple with different forms of risks
being exposed to, it is essentially required that management of risks in
The term risk can be described as the likelihood of an event an organization should be orderly, transparent and wholly coordinated
impacting positively or otherwise on the realization of an organization’s for the entire benefits of the organization [20]. It has also been argued
objectives [23]. According to Ayinde et al. [24] risk is seen, to a large that ERM is not only a platform for reducing or minimizing risks or
extent as, unavoidable and ubiquitous. It is therefore important for losses but a veritable avenue for identifying new business ideas and
SMEs to consciously assess the risks peculiar to their businesses on opportunities that will not only guarantee profitability but also enhance
regular basis [25]. This position was equally maintained by Peterson the survival of a firm [34].

Int J Account Res, an open access journal Volume 5 • Issue 2 • 1000165

ISSN: 2472-114X
Citation: Kehinde A, Opeyemi A, Benjamin A, Adedayo O, Abel OA (2017) Enterprise Risk Management and the Survival of Small Scale Businesses
in Nigeria. Int J Account Res 5: 165. doi:10.4172/2472-114X.1000165

Page 3 of 8

Building block of enterprise risk management (ERM) Information and communication: This is to ensure that timely
and relevant information are sourced and made available within an
The term ERM as proposed by COSO, is divided into eight organization in order to enable people, units and departments carry
interrelated modules which are expected to be integrated with the out their functions. Information system procures data both from the
management process [35]. The interrelated elements are as detailed internal and external sources, makes available necessary information
and explained below: for managing risks and making informed decisions. Effective
Internal environment: It comprises mainly the core philosophy of communication occurs only when there is free flow of information
an enterprise which indicates the risk awareness of its staff and forms the from top to bottom, from bottom to top and across all departments. It
basis upon which the enterprise risk management is measured. It spelt is necessary that all personnel understand their own role in enterprise
out the firm’s values, culture and ethical issues. Internal environment risk management, and also how their functions within the organization
therefore contains the management attitude to risk, its risk appetite, the affect others. The importance of effective communication with external
responsibility of the board of directors, the allocation of responsibilities institutions or persons such as customers, creditors, shareholders and
and the welfare and development of all the stakeholders within an other stakeholders cannot be overemphasized for effective management
organization. of relationship and risks.
Objective setting: All organizations irrespective of their sizes Monitoring: The gains of enterprise risk management can be
or operational complexities are faced with various risks either from improved upon through continuous monitoring and evaluations of
internal or external environment. Therefore the establishment of clear risks and opportunities. Continuous monitoring is necessary in the
objectives set at the strategic level is not a condition but a requirement day to day operation of an organization. The continuous monitoring
for risks identification, assessment and response to risk for its efficient processes and techniques guarantee the timely assessment of risks and
management. The objectives must state the goals and objectives of its effectiveness. It must be noted that any deviation in the procedures
the organization’s management of risks as it affects its operations, could portend serious risk to the management which must be
reporting, and compliance. Objectives state the firm’s risk appetite and proactively reported to top management and the board of directors for
define its risk tolerance level within the organization. immediate action.
Event identification: It is the responsibility of the management to The Concept of small and medium scale enterprises
recognize the likely occurrence of events that are capable of affecting
In the post Nigeria’s independence, considerable attention has
the operational efficiency of an organization. These events must
been paid to the growth and development of small and medium scale
be evaluated in order to appreciate its implication on the business
industries in order to fight poverty and unemployment. Nigeria has
strategy and accomplishment of the organizational goals. Any event
witnessed various economic reforms since 1986 which has necessitated
with an adverse effect possesses a risk and requires the management’s
a shift from large scale industrial or capital intensive to small scale
assessment and response. On the other hand, events with positive
industries targeted towards the development of domestic economy for
impact which portend opportunity require the attention of the
sustainable industrial take-off.
management to optimize its benefits.
It has been emphasized that such enterprises in an emerging
Risk assessment: Risk assessment is the ability of the management
economy such as Nigeria will bring about the much needed
of an organization to measure the vulnerability of an event and the
entrepreneurial development, re-distribution of income and wealth,
impact it would have on the accomplishment of its goals. Management
economic self-sufficiency and host of other economic benefits [16].
evaluates events from two viewpoints - probability of occurrence and
The embracement of SME has been a veritable venture for ameliorating
the effect it will create. It normally uses a combination of qualitative
the rural-urban drift thus contributing substantially to increase in
and quantitative methods for evaluation. Risks are measured on both
gross domestic product (GDP), export earnings and generation of
an in-built and a residual basis. The positive and negative impacts of
employment opportunities. Globally, there is no specific definition
potential events should be scrutinized, on individual aspects and on
of small and medium scale enterprises. The various researchers and
group, and also across the organization.
scholars have attempted to define and classify SME but there have not
Risk response: The ability of a firm’s management to evaluate been any form of uniformity in its basis and concept. Several effort have
risks affecting the success or otherwise of their enterprise determines been geared towards defining and classifying SMEs in terms capital
its level of response to it. Responses may consist of risk evasion, risk base, number of employees, turnover, fixed assets, product market
minimization, risk sharing, and risk acceptance. Before finalizing its share and so on which vary from one country to another.
response, management evaluates the consequences of the response in SMEs have been classified in Nigeria in various ways:
terms of: probability and impact, costs-benefits analysis, possibility
of crafting residual risk. Management also tries to identify any • Third National Development plan viewed SMEs as a
opportunity that might be existing, and formulates an organization- manufacturing outfit having less than ten staff in its
wide, opinion of risk, to decide whether overall residual risk is within employment and which its investment in fixed asset did not
the organization`s risk appetite. exceed N 600,000.

Control activities: This represents the measures the management • The Federal Government Small Scale Industry Development
will take in order to ensure that adequate and effective risk responses Plan of 1980 defined a small scale business in Nigeria as any
are carried out. Control activities take place all over the organization, at manufacturing process or service industry, with a capital not
all levels and in all functions. They include a wide range of activities as exceeding N 150,000.
varied as approvals, sanctions, authentications, settlements, appraisals • The association of small scale industries of Nigeria (1973)
of operating performance, security of assets, and classification and put it as investment in capital, land, building, and equipment
allocation of duties and responsibilities. valued up to N 60, 000 and has a work force not exceeding fifty

Int J Account Res, an open access journal Volume 5 • Issue 2 • 1000165

ISSN: 2472-114X
Citation: Kehinde A, Opeyemi A, Benjamin A, Adedayo O, Abel OA (2017) Enterprise Risk Management and the Survival of Small Scale Businesses
in Nigeria. Int J Account Res 5: 165. doi:10.4172/2472-114X.1000165

Page 4 of 8

persons. This position was held when the exchange rate was N especially in the current economic crisis. This important function can
0.658 to $1. only be carried out by an independent third party who is not involved
in the daily operations of the firm and at the same time an expert in
• The Federal Ministry of Industries during the pre-Structural
the nature of the business concerned. This is because most of the SMEs
Adjustment Programme (SAP) defined SME as enterprises
are not big enough to have boards as many of them are being managed
with initial investment not more than N 500,000 including
by sole proprietors or partners. So, these business owners can engage
working capital.
the services of professionals depending on the areas of operations who
• The Centre for Management Development (CMD) in the policy will from time to time evaluate and analyze the trends, progress or
proposal submitted to the Federal Government in 1982 viewed otherwise of their businesses and offer advices based on the current
small and medium industry as a manufacturing or service realities.
oriented industry with up to 50 employers in its employment.
The advices and recommendations of the experts will assist the
In today economic dispensation in Nigeria, the above categorization SMEs to design governance structures and practices that will support
of Small and Medium Enterprises (SMEs) is not visible in view of the the businesses in determining priorities, the necessary information
monumental devaluation of Naira. Most of the SMEs in Nigeria are needs, and assisting in focusing on areas that would impact positively
into hotel business, restaurant, fast food, home equipment, block to the success of their ventures [42]. The recommendations of the
industry, fishery and other agro-allied businesses. We cannot compare professional experts will help to mitigate risks that are peculiar to the
the SMEs in Nigeria with that of United States, United Kingdom, South individual businesses through the implementation of effective strategy.
Africa or any country in Europe or Asia in view of classification, capital This is achieved through active assessment of an organizations’ risk
base, nature of the enterprise and other operational or performance appetite which can be viewed from the perspective of all stakeholders. It
indicators. will also help the SMEs owners to know when it is inevitable to change
their strategic goals in the light of changes in risk exposure and vice
As earlier emphasized, small and medium scale industry plays
versa, help them identify potential risks and continually monitor risks,
fundamental roles in the industrial revolution or take-off of any country
ensuring sound crisis response, and the sourcing of vital information
(Ahmed). Therefore, SMEs have evolved to develop Nigeria domestic
essential to their going concern as an entity.
economy through the production of essential goods and services [36].
The need to promote small and medium scale industry in Nigeria It has been said that only 30% of small and medium scale enterprises
becomes inevitable in view of its attendant benefits in such areas as job survive in business most especially in recessionary period [43].
creation, import substitution, effective and efficient utilization of local Therefore, in order to ensure sustainability and development of SMEs,
raw materials and veritable avenue for the implementation of local risk identification procedures need to be improved. This is because
content act [36]. The focus of small and medium businesses has shifted there are two top identified challenges in providing risk oversight:
from providing only social goods but as a vehicle to entrepreneurship
• The SMEs manager’s capacity to define and explain the firm’s
[37]. It is on the strength of this laudable importance of SMEs that the
risk management structure and process,
policy makers in the Nigerian economy should pay a closer attention
to it through the necessary support and development for sustainability. • The capacity to identify and assess various risks being faced by
the organization.
The Institution of risk oversight
Therefore, risk identification is very fundamental through the
The risk oversight function as depicts here is different but akin to clear understanding of smaller high-risk operations within the firm
that of big corporation or limited liability companies. This is because that could impact the whole enterprise. The business managers should
many SMEs in Nigeria have not grown to the height considered for the evaluate risk models used and learn and understand their limitations
formation of boards where directors or audit committee are charged
with a view to properly applying judgment regarding their output.
with the responsibility of risk oversight [38].
There is equally a need for improved information flow since relevant,
The financial crises that have bedeviled many business enterprises accurate, timely information is critical to risk oversight and these
in the past few years have actually called for caution even in the light qualities can be enhanced through the culture of open and effective
of new regulations to comply with and the need for implementation information flow.
of good risk management [39]. Business owners are always frustrated
when it comes to the intensity requirement or compliance with This will assist the appointed professional or experts to manage
regulatory and financial matters couple with the decisions that have the quantity and quality of information received, and the risk of
to do with the future of their businesses, progress achieved in business asymmetrical information from the management so as to make
strategic objectives and timely risk mitigation activities [40]. As earlier informed and relevant decisions to the benefits of the enterprise.
mentioned many SMEs owners are not experienced in identifying, Additionally, in order to maximize the usefulness of risk oversight,
managing or mitigating risks fundamental to the success of their there is need for the SMEs owners to be transparent in dealing
businesses which stem from the business philosophy of the owners with the appointed professional or expert and to ensure the timely
[41]. In order to give their businesses a leap and sustain continuity,
implementation of his or her recommendations. The benefits that will
there is need for management of SMEs to appoint a professional or an
accrue to SMEs for implementation of risk oversight include:
expert to on continuous basis assess risks facing their enterprises.
• Proper recording of business transactions, keeping proper
There is an increased need for SMEs entrepreneurs to ensure that
books of account and timely generation of financial statements,
risk oversight is embedded in the operation of their enterprise as part
of their business strategy in ensuring that all risks capable of leading to • Cordial relationship with the law enforcement agencies such as
untimely collapse of their businesses are sufficiently safeguarded most Local, State and Federal Inland Revenue Services,

Int J Account Res, an open access journal Volume 5 • Issue 2 • 1000165

ISSN: 2472-114X
Citation: Kehinde A, Opeyemi A, Benjamin A, Adedayo O, Abel OA (2017) Enterprise Risk Management and the Survival of Small Scale Businesses
in Nigeria. Int J Account Res 5: 165. doi:10.4172/2472-114X.1000165

Page 5 of 8

• Timely identification of business and financial risks and Variable Predicted sign Type Scale
their management in order to enhance the value of the entire ERM + Independent Control and management of risks
business enterprise [44,45]. FINA + Independent Capital employed in the business
GAS + Independent Keeping of relevant books of
• Provide an opportunity to manage uncertainty in advance account.
through planned response to risks and at the same time reduces
Table 1: Proxies and predicted signs for explanatory variables.
waste and stress.
Current Status to risk PROFit=β0+β1ERMit+β2FINAit+β3GASit+eit

Though the concept of risk is universal but its vulnerability is Where:

different from nation to nation. The degree of risk cannot be fully PROFit-Profitability which the excess of revenue over expenses
appreciated without first understand the nature and structure of a
country economy where such an enterprise is located. Enterprise Risk ERM it-Effe
Management (ERM) has shown through literature to be an effective
β0-Constant or Intercept.
and useful tool for managing risks in business firms. Sadly, few
firms in Nigeria embraced, adopted and implemented ERM which is ctive Risk Management. The assessment of the priority given to risk
basically due to ignorance and lack of substantial benefits to the growth management by the SME. This is measured by standard deviation.
and sustainability of such an enterprise. It is therefore necessary to
FINAit-Financial Adequacy representing the capital base of the
understand ERM and how it can impact or support firms in their bid to
enterprise
accomplish their business objectives.
GAS it-Good Accounting System i.e. the keeping of appropriate
Though ERM adoption and implementation is a veritable option to
books of accounts.
business enterprises success in Nigeria but there is an aspect which has
not really been adequately exposed. Many researchers have extensively e-Stochastic or disturbance term.
addressed the various risks inhibiting the success of many business
enterprises which have actually led to their permanent death. This t-Time dimension of the Variables
situation most of the time is caused by the inability of the business β1-3-Coefficients to be estimated or the Coefficients of slope
owners to identify and nip the risk in the bud. As earlier noted, SMEs parameters.
in Nigeria cannot afford to engage the right caliber of personnel in the
area of risk management thus a reason such important function should The expected signs of the coefficients (a priori expectations) are
be sourced outside the firm for a fee. In order to guarantee the going such that β1-β3>0.
concern of SMEs, this paper intends to look at the relationship between
Discussion of Results
the SMEs survival measured in terms of profitability and effective
risk management. We will also investigate the relationship between The results from the descriptive statistics as presented in Table
financial adequacy and good accounting systems which are major 2 indicate a mean profitability of 0.43137 for the SMEs under
challenges of SMEs in Nigeria and profitability. consideration. It represents an average percentage (%) distribution of
approximately 43% for the period. On the other hand; effective risk
Development of Hypotheses management, financial adequacy and good accounting system maintain
In this study, the following are the hypotheses to be tested and are an average mean distribution value of 0.33465, 0.14945 and 0.28020
stated in null form: respectively for the sampled SMEs. Conversely, the review of empirical
results from the Pearson correlation analysis on the relationship
H1: There is no significant relationship between profitability and between survival (profitability) and enterprise risk management shows
effective risk management in SMEs in Nigeria, that there is a positive correlation between effective risk management
H2: There is no significant relationship between profitability and (ERM) and profitability of SMEs and it is significant at 1% probability
financial adequacy in SMEs in Nigeria. level with a correlation coefficient (r) of approximately 0.44. Also,
the result shows that there is a positive correlation between financial
H3: There is no significant relationship between profitability and adequacy (FINA) and profitability which is also significant at 1%
good accounting system in SMEs in Nigeria. probability level with a correlation coefficient (r) of about 0.589. Again,
findings from Table 3 further depicts that there is a significant positive
Research methodology correlation between good accounting system (GAS) and survival of
In order to achieve the objectives of this study, secondary data SMEs. This is evident with a correlation coefficient of about (r) 0.815
were extracted from different previous researches on the effectiveness and it is significant at 1% level.
of risk management, financial adequacy and good accounting system In the first instance, the test for multicollinearity was carried out
as a measure of survival for 50 Small Scale Enterprises (SME). The before analysis of the regression model. According to Field, this test
measure of survival is expressed as profitability. The extracted data is necessary because multicollinearity can affect the parameters of
were responses of respondents to copies of questionnaire administered a regression model. Menard, Adeyemi and Fagbemi suggested that
on each of the variables. The ordinary least square (OLS) was employed a tolerance value less than 0.1 indicates a serious multi-colinearity
in the testing of the research hypotheses (Table 1). problem between the independent variables [46,47]. Nevertheless,
Model specification since all values are more than 0.10, there is no issue of multicollinearity
between the independent variables. Also, Myers suggested that a
We formulated the following model to examine the relationship variance inflation factor (VIF) value greater than 10 calls for concern,
between independent and the dependent variables. however, for this study, the VIF values are less than 10 [48].

Int J Account Res, an open access journal Volume 5 • Issue 2 • 1000165

ISSN: 2472-114X
Citation: Kehinde A, Opeyemi A, Benjamin A, Adedayo O, Abel OA (2017) Enterprise Risk Management and the Survival of Small Scale Businesses
in Nigeria. Int J Account Res 5: 165. doi:10.4172/2472-114X.1000165

Page 6 of 8

N Statistics Minimum Statistics Maximum Statistics Mean Statistics Std. Statistics Skewness Statistics Kurtosis Statistics
PROF 50 0 0.995 0.43137 0.3156455 0.379 -1281
ERM 50 -0.379 0.955 0.33465 0.274578 0.0811 0.287
FINA 50 0.001 0.981 0.14945 0.285754 2.386 4.089
GAS 50 0.01 600 0.2802 0.150378 0.387 -0.987
Valid N 50
Table 2: Descriptive statistics.

PROF GAS FINA ERM

PROF

Pearson Correlation 1
Sig. (2-tailed)
N 50
ERM
Pearson Correlation .439** 1
Sig. (2-tailed) 0.001
N 50 50
FINA
Pearson Correlation .589** .159** 1
Sig. (2-tailed) 0 0.273
N 50 50 50
GAS
Pearson Correlation .815** .259 .472** 1
Sig. (2-tailed) 0 0.067 0.001
N 50 50 50 50
**Correlation is significant at the 0.01 level (2-tailed).
Table 3: Pearson correlations for selected SMEs.

Model R R Square Adjusted R Square Std. Error of the Change Statistics

Estimate R Square F change df1 df2 Sig
Change F Change
1 .873a .759 .748 .158693 .761 49.189 3 46 .000
Predictors: (Constant), GAS, ERM, FINA.
Table 4: Model summary.

Model Sum of Squares Df Mean Square F Sig.

1 Regression 3.691 3 1.240 49.189 .000a
Residual 1.161 46 .025
Total 4.876 49
Predictors: (Constant), GAS, ERM, FINA.
Dependent Variable: PROF.
Table 5: ANOVA.

Also, the results from the regression analysis result for the selected Similarly, consistent with our apriori expectations (β1>0), further
SMEs as depicted in Table 4 depicts that R2 which is often referred empirical findings provided in Table 6 shows that there is a significant
to as the coefficient of determination of the variables was 0.759. The positive association between effective risk management and profitability
R-Squared as a measure of the overall fitness indicates that the model of the sampled SMEs. This is evident in the t-statistics value of 3.215
is capable of explaining approximately 76% of the variability of the and a p-value=0.002. This outcome basically implies that the higher the
SMEs profitability. It implies that the model explains nearly 76% of the risk faced by SMEs, the more the owners will seek for more returns
systematic variation in the dependent variable. It means about 24% of in terms of profitability. In essence, the more profitable a SME is, the
the variations in profitability of the sampled SMEs are accounted for by more such SME will be exposed to risk. Correspondingly, consistent
other factors not captured by the model. with our apriori expectations (i.e. β2>0), empirical findings from the
This result is corroborated by the adjusted R2 (adjusted R-squared) regression analysis on the second hypothesis indicates clearly that a
of about 0.748, which is in essence the proportion of total variance that significant positive relationship does exist between financial adequacy
is explained by the model. Similarly, findings from the Fishers ratio and profitability. This is evident in the t-statistics value of 3.348 and a
(i.e. the F-Statistics which is a prove of the validity of the estimated p-value equaled 0.002. This implies that financial adequacy of SME has
model) as reflected in Table 5, presents a p value that is less than 0.05 a direct impact on profitability. The implication is that the more capital
(p-value<0.05); this invariably suggests clearly that simultaneously the a SME is exposed to, the more the business opportunities to leverage
explanatory variable (i.e. effective risk management, financial adequacy on to increase profitability. Consequently, this result corroborates the
and good accounting system) are significantly associated with the propositions of Cofie [49], Abor and Biekpe [50], Gbandi and Amissah
dependent variable, profitability. [51], Abor and Quartey [52]. They revealed that larger firms with

Int J Account Res, an open access journal Volume 5 • Issue 2 • 1000165

ISSN: 2472-114X
Citation: Kehinde A, Opeyemi A, Benjamin A, Adedayo O, Abel OA (2017) Enterprise Risk Management and the Survival of Small Scale Businesses
in Nigeria. Int J Account Res 5: 165. doi:10.4172/2472-114X.1000165

Page 7 of 8

Model Unstandardized Standardized Collinearity

Coefficients Coefficients Statistics
B Std. Beta T Sig. Tolerance VIF
Error
1 (Constant) -0.071 0.052 .1.339 0.185
ERM 0.273 0.087 0.238 3.215 0.002 0.9301 1.069
FiNA 0.296 0.091 0.279 3.348 0.002 0.778 1.278
GAS .1.287 0.174 0.617 7.428 0 0.745 1.353
Dependent Variable: PROF.
Table 6: Coefficients.

capital adequacy leverage on viable project opportunities for more • The SMEs managers should learn and appropriate the
earnings thus allowing them to pay higher dividends to shareholders. concept of risk oversight by leveraging on the expertise of
the professionals not only in the management of risks but in
Lastly, result on the third hypothesis shows that there is significant
identifying opportunities for the benefits of their enterprises.
relationship between good accounting system and profitability; and
this is evident with the t-statistics value of 7.428 and a p-value <0.000. • The managers must ensure that every individual in the
This outcome implies that SMEs with good accounting system will organization receives necessary training and understands
be more profitable that SMEs with poor accounting records. This is specific risk peculiar to their various job functions. This is to
because waste, unreasonable tax assessment and other avoidable losses ensure that every individual in the organization is responsible
will be safeguarded. This result corroborates the work of Onaolapo and for managing some aspect of risk through acquisition of basic
Adegbite [53], Ikechukwu [54], Oladejo [55], Ezejiofor et al. [56] where risk management skills and appreciation of the organization’s
the fundamental importance of good accounting records to the success risk tolerance as spelt out by the management.
of any business enterprise was emphasized.
• It is equally important that SMEs management should clearly
Conclusion define its risk appetite and fashion out effective and efficient
risk culture. This will assist the organization in determining
This study basically looked at enterprise risk management and the and evaluating its performance and financial health.
survival of SMEs n Nigeria. Based on the first hypotheses, the study
observed that effective risk management has a significant impact on • In order to fully appropriate the benefits of ERM particularly
profitability of SMEs in Nigeria. That is, an increase in profitability will risk oversight; the business manager must ensure the
of necessity lead to increase in risk because the higher the returns the understanding, trends and working of the domestic economy
higher the risk expected. Also, findings from the second hypothesis so as to identify risks and opportunities emanating from the
assert that there is a significant positive relationship between financial fiscal and monetary policies of the government. All the issues
adequacy and profitability of SMEs. or factors affecting a particular sector in which the organization
is operating must be considered before implementing risk
Finally, the result from the third hypothesis authenticates the oversight framework.
submissions of Onaolapo and Adegbite [53] Ikechukwu [54], Oladejo
[55], Ezejiofor et al. [56] where they suggested that SMEs tend to make • For effective implementation of risk oversight, the managers
more profit due to their ability to maintain good accounting system. must ensure that all necessary books of account are maintained
Consequently, the paper concludes that while the financial adequacy and that there is transparency in all their dealings most
appears to have a visible and significant effect on profitability of SMEs, especially with the appointed expert.
equally, good accounting system tend to have a significant positive It is believed that the trends at which businesses collapse in Nigeria
impact on SMEs profitability. In addition, the ability of SMEs to remain will be ameliorated if the risk oversight concept is implemented and
profitable and at the same time withstand the test of time for survival embraced by SMEs managers. It is not doubtful that if the concept
depend on their responses to risk issues in view of increased in business is adopted, it will not only assist in the proper identification of risks
complexities, weak control in monitoring operational activities, peculiar to the success of an organization but it will go a long way
development in high technology and other vices that are making SMEs in enhancing the performance of the business. It therefore requires
susceptible to risks. This is very fundamental to the success of SMEs in that the managers of SMEs must be transparent, improve their
Nigeria. knowledge capacity and strictly adapt and implement the suggestions
An important limitation to this paper is the sample size in view or recommendations of the appointed expert. Through this innovation,
of the numerous numbers of SMEs operating in Nigeria. In order to the SMEs roles as catalysts of economic growth and development will
address this limitation, future research can increase the sample size. be enhanced and the result or improvement will be evident in Gross
Again, it would be of great interest if future research can investigate Domestic Product or any other economic indicator.
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ISSN: 2472-114X
Citation: Kehinde A, Opeyemi A, Benjamin A, Adedayo O, Abel OA (2017) Enterprise Risk Management and the Survival of Small Scale Businesses
in Nigeria. Int J Account Res 5: 165. doi:10.4172/2472-114X.1000165

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