Effect of Exchange Rate Volatility on Return on Assets of Consumer Goods Manufacturing Companies Listed In Nigeria

The financial performance of consumer goods firms in Nigeria is constrained by a weak macroeconomic framework with persistent exchange rate volatility, multiple exchange rate windows and forex restrictions, and distortionary activities by the central bank. Thus, persistent exchange rate volatility exposes the companies to external risks because their projected revenue and costs, alongside profit margin and earnings per share, are affected. Hence this study examined the effect of exchange rate volatility on return on assets of consumer goods manufacturing companies listed in Nigeria between the periods of 2010 to 2019. The study engaged an ex-post facto research design. A purposive sampling technique was used to select a sample size of fourteen (14) consumer goods firms from the listed firms. The study used panel data, panel regression models estimated was in respect to the fixed-effect model and random effect model, Hausman test indicated the appropriate model, while the exchange rate volatility (ERV) was computed using GARCH approach. The inferences were drawn at 1%, 5%, and 10%. The findings of the study showed that exchange rate volatility was negative and had statistically significant effect on return on assets [coefficient = - 0.454; P – value = 0.013]. Firm’s Size was found to be negative and had statistically significant effect on return on assets at 1% level [coefficient = - 0.057; P – value = 0.000]. Leverage had negative and statistically significant effect on return on assets [coefficient = - 0.089; P – value = 0.091]. The study concluded that exchange rate volatility has a significant influence on return on assets. The study recommended that the monetary authorities should employ various policies to steer the exchange rate downward. This will help boost local firm return on assets and at the same time increase firms' productivity.

Keywords: Exchange rate Volatility, Financial Performance, Firms Size, Leverage, Return on Assets