Banks provides the impetus for economic growth. However, the financial crisis of 2007-2008 emanated from tremendous use of financial innovation, causing a major drawbacks that triggers new trends in the study of financial risks and business risk. This study investigates the moderating role of financial innovation on the financial risks, business risk and firm value nexus of selected commercial banks in Nigeria. Data on audited financial reports of the selected sixteen (16) commercial banks listed in the Nigerian stock market have been collected for the period of 9 years (2009-2017), making up to 144 data observations. Panel data approach is employed in the study for the analytical model with the following steps: unit root test, Hausman test for fixed or random effect choice and hypothesis testing. The study use software stata version 13 for the analysis. The dependent variables in this study is firm value proxy by enterprise value while the independent variables in this study is firm value proxy by enterprise value while the independent variables consist of financial risks proxy by credit risk, liquidity risk, operational risk, market risk and solvency risk; business risk and moderating variable financial innovation. The controlled variables used in this study include diversification, return on asset, bank size, GDP growth rate and Herfindahl-Hirschman Index. Based on the fixed effect analysis, model 1 shows that credit risk (CR) has a significant positive effect on firm value while liquidity risk (LR), operational risk (OR), market risk (MR) and solvency risk (CAR) has a significant negative effect in firm value. The model 2 indicates that business risk also has a significant negative effect on firm value. The model 3 examines the interactive effect of financial innovation (FI) and indicates that financial innovation has a significant negative (direct) effect on firm value. The interactive effect CR*FI is found to have a significant negative effect on firm value, the interactive effect MR*FI and CAR*FI also have a significant negative impact on firm value. While the interactive effect LR*FI and OR*FI both has a significant positive effect on firm value. The model 4 suggests that financial innovation has a significant positive effect on firm value while the interactive effect BR*FI has a significant negative effect on firm value. Hence, the findings suggest that managers should make considerable investment in innovation and aligning their innovative capabilities with their risk management policies to improve their firm value. The study contributes to the understanding and growing complexity of the dynamic relationship with justifiable evidence useful for policy makers and future researchers as referral. The study suggests that future research might possibly examine the nexus across countries with different economic climate particularly developed capital market where access to financing is readily available.
