CORPORATE PERFORMANCE IN NIGERIA: THE EFFECT OF OIL PRICE AND EXCHANGE RATE FLUCTUATIONS

Osaretin Kayode Omoregie,Sodik Adejonwo Olofin

doi:10.32479/ijefi.8829

Abstract

Discussions on the separate effect of oil price and exchange rate fluctuations on economic activity and corporate performance in Nigeria are inconclusive. This study investigates the simultaneous influence of oil price and exchange rate and the impact of the different exchange rate regimes adopted in Nigeria on corporate performance, using the Structural-VAR / Historical Decomposition framework. The literature in these areas is sparse. Result from this study suggests that oil price shocks have negative influence on corporate performance with a very short-term positive influence. Exchange rate shocks have positive impact on corporate performance with an instantaneous negative effect. Also, fixed exchange regimes are associated with a downturn in corporate performance, while flexible regimes are associated with improved corporate performance. This result support diversification and flexible exchange rate policies, while corporate managers should adopt risk-hedging strategies to cushion the adverse combined effect of oil price and exchange rate shocks.Keywords: Corporate Performance, Oil Price, Exchange Rate, SVAR, Historical Decomposition, NigeriaJEL Classifications: F38, G3, Q43DOI: https://doi.org/10.32479/ijefi.8829

Highlights

Oil price and exchange rate are among the most important global economic factors that constitute major external shocks to business cycles and economic stability
Given the relationship between oil price shock and exchange rate fluctuation, this study aims to investigate the concurrent impact of these two events on corporate performance
The objective of this study is to establish the influence of oil price and exchange rate movement on corporate performance in Nigeria

Summary

Introduction

Oil price and exchange rate are among the most important global economic factors that constitute major external shocks to business cycles and economic stability. The literature has provided evidence of the importance of oil and its related shocks to economic activity (Mordi and Adebiyi, 2010; Aremo et al, 2012), as well as that of exchange rate and its pass-through effect on oil price to productive sectors. Movements in these variables pose great policy challenge for economic and business managers given their associated economic uncertainty and instability (Daddikar and Rajgopal, 2016). The implication of exogenous shortage of energy and oil associated with oil price increase will manifest in the decline of corporate performance and resultant general economic recession, in oil-importing economies (Ayres and Voudouris, 2014)

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