Empirical evidence of the relationship between terrorism and firm financial performance in Nigeria

Abstract

PurposeThis paper investigates the relationship between terrorism and firm financial performance in Nigeria. The country has become one of the riskiest countries in Sub-Saharan Africa due to the intensity of recent terror attacks. Also, there is a growing focus on the importance of firms, given firms' economic contribution towards growth, employment and economic and industrial transformation. However, no study has tried establishing a relationship between terrorism and firm financial performance. Therefore, providing empirical proof of this relationship is the primary purpose and motivation of this paper.Design/methodology/approachData from the World Bank Enterprise Survey (WBES) and the Global Terrorism Database (GTD) were used for this study. The baseline analysis was estimated using the pooled ordinary least squares regression technique. For robustness checks, the fixed effects technique was used to control for heterogeneity across the authors' sample of firms and unobserved factors that are time-invariant, while the IV technique was employed to control for any potential endogeneity.FindingsThe results obtained from the regression analysis were robust to different econometric estimations and approaches. Terrorism was found to have a consistent and significant negative impact on firm financial performance. Furthermore, the marginal effect of terrorism on firm performance was more substantial when state-level terrorism data were used.Originality/valueStudies often focus on the impact of political instability (which is a measure subjectively based on perception) on foreign direct investment or on the activities of multinational corporations. The authors' research is new in supplying evidence of the relationship between terrorism (an objective measure) and the financial performance of manufacturing firms in Nigeria. Methodologically, this study also employed spatially distributed incidents of terrorism within the country. This is because incidents of terrorism are often spatially distributed within a country (i.e. province or state). This will provide new evidence of the effects of within-country variations of terrorism on firm financial performance.

Terrorism as Socio-Economic and Cultural Barriers to Indonesian Firms’ Financial Performance

“…The macrolevel data on terrorism was collected from the global terrorism database. To establish the discriminant and convergent validity of the measures (Henseler et al, 2015), a standardized survey instrument was employed with an identical sampling methodology to produce comparable data across firms and countries and minimize any potential error (Okafor & Calderon, 2022). Additionally, the global terrorism database reports the country-specific number of terror attacks and collects data daily.…”

“…Likewise, Shahzad et al (2017) reported the negative association of terrorism with industry performance based on the research conducted among Pakistanis equity industries from 2000 to 2014. In addition, a recent study conducted among Nigerian manufacturing firms by Okafor and Calderon (2022) reported the significant influence of terrorism on a firm's financial performance. Likewise, Mazhar and Rehman (2021) analyzed the influence of terrorism on manufacturing firms in Pakistan.…”

“…Researchers also reported the negative impacts of terrorism on employee growth at organizational levels (Soomro et al, 2021). Terrorism has also been reported negatively influence an organization's accumulation, capital mobility, productivity, and labor growth rate (Okafor & Calderon, 2022), depicting the poor performances of such organizations (Mazhar & Rehman, 2021). Regardless of the research available in the domain, there is a dearth of empirical studies considering the impact of terrorism on the firms listed on the Indonesian Stock Exchange, and very few studies have considered the financial performance of various firms related to a specific industry, that is, manufacturing (Okafor & Calderon, 2022).…”

“…Researchers also highlighted a positive association of fixed assets with a firm's performance (Liu et al, 2021;Velliscig et al, 2022). The high involvement of bureaucrats or the unnecessary government regulation that hinders business practices were found to be negatively associated with firm performance (Okafor & Calderon, 2022). Likewise, Anafia and Ulpah (2021), in a study conducted among the Indonesian Stock Exchange listed firms, found that the competition of non-listed firms negatively impacted the performances of the listed firms on the Indonesian Stock Exchange.…”

“…Regardless of the drastic impacts of terrorism on business performance, research in the domain is scarce (Broeders et al, 2021;Shandler et al, 2022). More recently, scholars suggested examining the impact of terrorism on the financial performance of organizations (Lee et al, 2021;Okafor & Calderon, 2022).…”