THE EFFECT OF EXCHANGE RATE FLUCTUATIONS (ERF) ON THE FINANCIAL PERFORMANCE OF LISTED CONSUMER GOODS COMPANIES IN NIGERIA

Abstract

This study examines the impact of exchange rate fluctuations (ERF) on the financial performance of listed consumer goods companies in Nigeria. Using secondary data from 2000 to 2024, the study applies a random effects regression model to analyze variables such as inflation, oil prices, government expenditure, and trade openness. The Hausman test determined that the fixed effects model was most appropriate for the analysis. The findings suggest that ERF negatively impacts profitability, with exchange rate volatility decreasing return on assets. In contrast, inflation has a positive effect, indicating that consumer goods companies can leverage inflationary conditions to enhance pricing power. Rising oil prices also negatively affect profitability, while government expenditure, trade openness, and credit availability have positive effects on profitability. The study highlights the importance of hedging strategies, as firms that employ risk management practices tend to perform better financially. The study recommends that consumer goods companies adopt hedging strategies, while policymakers focus on stabilizing exchange rates, improving access to credit, and promoting macroeconomic stability, including managing inflation and fostering trade openness.