Corporate Performance in Nigeria: Insights from Economic-Specific Shocks

Abstract

Aims: This study investigated the impact and contributions of macroeconomic factors to corporate performance by considering the contributions of three key market segments in the economy: international, money, and goods markets. Methodology: This study concentrated on Nigeria, and the time series data span from January 1995 to December 2022. Given the mixed order of integration among the variables of interest, the analysis was based on the SVAR/HD estimations, which investigate shocks based on theoretical restrictions and generate each variable's contributions to corporate performance. Inferences are based on the impulse response, variance decomposition and historical decomposition. Results: Based on Structural One S.D. Innovations ± 2 S.E, the study's results underscore the vulnerability of Nigerian businesses to exogenous shocks and speculative markets (44.63%), with the international market exerting the most significant influence on corporate performance through exchange rate movements (32% of 44.63%), followed by the money market. Notably, the variables under consideration demonstrate varying relationships over different time periods. In the short-term, oil prices, government deficits, and inflation positively impact corporate performance, but this effect reverses to negative in the medium to long term. Conversely, the exchange rate initially has a negative effect but shows a positive long-term impact. Surprisingly, the impact of money supply and economic growth on corporate performance is found to be negligible. The study further reveals that firm-level endogenous shocks exert more influence on corporate performance development (55.37%) than exogenous macroeconomic factors (44.63%). Conclusion: This study provides actionable insights for decision-makers. The research suggests that corporate managers can enhance firm performance by adopting strategic hedging strategies against adverse exogenous international market and money market factors while focusing more on endogenous factors and choices within their direct control, which accounts more for corporate performance outcomes than non-controllable exogenous factors. Policymakers should pursue policies that enhance the macroeconomic climate within which businesses operate, especially in the areas of stable exchange rate, interest rate and inflation targeting policies.