Emphasizing the Exchange Rate Volatility and Firm Performance in Nigeria: A Dynamic Panel Regression Approach
In management science, firm success has played a central role. By analysing cross-sectional data for the most successful 20 companies listed on the Nigerian Stock Exchange, this study examined the impact of exchange rate fluctuations on the company’s results in Nigeria. The study developed three dynamic panel models that account for company heterogeneity and expanded recent research by enabling foreign investors and companies to base their investment decisions on the volatility of exchange rates between the Nigerian Naira and their currencies in their home countries. The tool used in the analysis is the dynamic panel data approach that applies the dynamic panel Arrelano-Bond-data Generalized system of moments (GMM) estimators for data and Arellano-Bover. The rate of return on assets (RRA), asset turnover ratio (ATR), and portfolio operation & resilience (PAR) variable are the variables used in the study to proxy firm efficiency. While RRA is obtained by simply dividing the company’s income by the company’s total assets, ATR and PAR variables are obtained by dividing the company’s sales revenue by the industry’s assets and dividing the percentage change in sales by the percentage change in the GDP of the gross domestic product. The volatility vector of the exchange rate is simply obtained by taking the square of the average modified relative change in The official rate of trade. The result of the estimation for the paned data There is no major difference between the dynamic panel approach of Arrelano-Bond and the generalised system of moments (GMM) estimators of Arellano-Bover. The outcome of the three estimates showed that the volatility of the exchange rate had a major negative impact on the rate of return on assets, the asset turn ratio and the operation & resilience of the portfolio, thus showing that the volatility of the exchange rate had a significant negative effect on the performance of the business in Nigeria between 2004 and 2013. For investors and financial market participants, some policy implications may be taken from this study. Since all businesses are not uniformly prone to volatility in exchange rates, danger Possibilities for diversification across sectors are recommended. Overall, the study indicates that the higher the volatility of the exchange rate in an economy,
the less efficient the economy would be for companies and, therefore, the lower the operating
output of companies.
Author (s) Details
Dr. Ikechukwu Kelikume
Lagos Business School, K.M 22 Lekki-Aja Expressway, Lagos Island, Lagos State, Nigeria.
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