FOREIGN EXCHANGE RATE VOLATILITY AND FINANCIAL PERFORMANCE OF LISTED MULTINATIONAL FIRMS IN NIGERIA
DOI:
https://doi.org/10.18623/rvd.v23.6472Keywords:
Foreign Exchange, Volatility, Firm Value, Financial PerformanceAbstract
This study examined the effect of exchange rate volatility on the financial performance of multinational listed firms in Nigeria. Through two models of volatility measuring its sensitivity to operating profit as well as firm values and regressed each on two financial performance metrics. Samples were drawn across multinational firms and 154 observations were generated. Two longitudinal models with outcome variables of Tobin’s Q and Return on Assets were run using Feasible Generalized Least Square Techniques and Panel Corrected Standard Error have evaluated them for appropriateness through preliminary and diagnostic tests. It was discovered that exchange rate sensitivity to firm value significantly have positive effect on financial performance measured as Tobins’ Q while foreign exchange rate sensitivity to operating profit has negative and significant effect on Tobin’s Q. Given the International Fisher Effect (IFE) theoretical submission that the difference in nominal interest rates between two countries reflects the expected changes in their exchange rates and its attendant effects in trades, this study provides evidence to explain how the theory affects multinational firms in Nigeria. The study concluded that forex affected profitability negatively but boosted the stock exchange performance of firms perhaps as a result of stock market boom.
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