Macroeconomic factors, firm characteristics and financial performance

Abstract

PurposeThe purpose of this paper is to explore the interrelationship between macroeconomic factors, firm characteristics and financial performance of quoted manufacturing firms in Nigeria. Specifically, the study investigates the effect of interest rate, inflation rate, exchange rate and the gross domestic product (GDP) growth rate, while the firm characteristics were size, leverage and liquidity. The dependent variable financial performance is measured as return on assets (ROA).Design/methodology/approachThe study used theex post factoresearch design. The population comprised all quoted manufacturing firms on the Nigerian Stock Exchange. The sample was restricted to companies in the consumer goods sector, selected using non-probability sampling method. The study used multiple linear regression as the method of validating the hypotheses.FindingsThe study finds no significant effect for interest rate and exchange rate, but a significant effect for inflation rate and GDP growth rate on ROA. Second, the firm characteristics showed that firm size, leverage and liquidity were significant.Practical implicationsThe study has implications for regulators and policy makers in formulating policy decisions. In addition, managers may better understand the interplay between macroeconomic factors, firm characteristics and profitability of firms.Originality/valueFew studies have addressed the interplay of macroeconomic factors and firm characteristics in determining the profitability of manufacturing firms in the country and developing countries in general.