Foreign Exchange Rate Factors and Firm Performance: An Empirical Analysis of Nigeria’s Manufacturing Sector

Abstract

This study investigates the impact of key macroeconomic variables on the return on equity (ROEQ) of listed manufacturing firms in Nigeria. Using Ordinary Least Squares (OLS) regression analysis, the research examines the influence of real effective exchange rate (REER), interest rate (INTR), inflation rate (INF), and market structure and pricing (MSP) on firm performance. Diagnostic tests, including heteroskedasticity tests, Ramsey RESET test, and Augmented Dickey-Fuller (ADF) test, were conducted to ensure model validity. The Granger causality test identified bidirectional relationships between REER and ROEQ, as well as INF and ROEQ. The OLS results indicate a strong predictive power, with an adjusted R² value of 0.984, confirming that the independent variables explain 98% of the variations in ROEQ. The findings highlight the critical role of exchange rate fluctuations, interest rate policies, and inflation stability in shaping firm performance, offering valuable insights for policymakers and industry stakeholders.