Macroeconomic Variables and Value Creation in the Nigerian Quoted Companies

Fatai A Atanda,Atanda Oyerinde Adewale,Taiwo Olufemi Asaolu

doi:10.2139/ssrn.2537739

Fatai A Atanda, Atanda Oyerinde Adewale + Show 1 more

Open Access

https://doi.org/10.2139/ssrn.2537739

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Abstract

This study uses 1,425 observations, relating to firm level and time series data sets, to examine the effect of macroeconomic variables on the economic value created by the Nigerian quoted companies. The data described macroeconomic variables such as inflation (INF), interest rates (INT), capital expenditure ratio of government (CAR) foreign exchange rates (FRXG), gross domestic product (GDPG) and the developments in the capital (CMKG) and labour market (LBMG), on the one hand and the economic value added (EVA) by 186 purposively selected quoted companies for the years 2001-2012, on the other. To allow for comparison of results, the companies were categorized into two sub-sectors: manufacturing (715 observations) and services (710 observations). The study uses descriptive and inferential statistical tools such as mean, standard deviation, correlation, pooled ordinary least square (OLS) regression and generalized method of moments (GMM) techniques to analyze data. The study found that EVA followed an autoregressive function after one period hence, lagged EVA was included in the model estimated. Due to the problem of heteroskedasticity i.e. the presence of significant serial correlation in disturbance term, Generalized Method of Moment results were relied upon and significant (positive and negative) impact of CAR (β=-0.0173, p

Highlights

In recent times, the Nigerian economy had been growing and the contributions of the quoted companies cannot be overlooked
This study considered nine (9) macroeconomic variables such as interest rates, inflation rates, foreign exchange rates, money supply, private sector credits, gross domestic product, capital expenditure of government and the developments in the capital and labour markets to address the following questions: 1) Is there any significant impact of the macroeconomic variables on the economic value created by the Nigerian quoted companies? 2) If there is, do the macroeconomic variables affect the economic value created by companies operating in the manufacturing and service sectors the same way?
gross domestic product growth (GDPG) was negatively correlated with four variables (CAR, foreign exchange rates (FRXG), money supply growth (MSG) and private sector credits growth (PSCG)) and positively correlated with the other four (CMKG, INF, interest rates (INT) and LBMG)

Summary

Introduction

The Nigerian economy had been growing and the contributions of the quoted companies cannot be overlooked. No organizations exist in vacuum (Mullins, 1999); they take inputs from the environment and, through a series of activities, transform them into outputs that command prices in the markets. This means that the performance of the companies must have been influenced by factors that are within and outside their control. The move towards free markets (capital, money, labour, commodity and foreign exchange) since 2000, growth in credits to core private sector, capital expenditure of government, together with monetary policies might have provided ample opportunities to the Nigerian quoted companies to optimally create value

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Conclusion