CHAPTER ONE
INTRODUCTION
1.0 BACKGROUND OF THE STUDY
Performance of a firm or an industry is very important as it shows the results achieved over a time period. Firm performance is dependent upon micro economic variables and macro-economic variables. Micro-economic variables are the internal firm specific variables. Management is able to control these variables. Macro-economic variables are the external variable which the management is not able to control. We have put our attention on the micro economic variables which can be handled by the management.
Every organization operates within the internal and external environments of business. Internal environments are within a firm, such that the prevailing factors are most times very subject to the control of the managers and (or) the board of directors. The external environment has to do with the larger business environment in which a firm operates; and the factors (i.e. Foreign direct investment, inflation rate, interest rate, money supply, etc) therein are not subject to the control of the managers. These factors in the external environment not subject to the control of the managers generally can be referred to as macro-economic variables (factors).
Corporate managers cannot control macro-economic variables, but the government can (through the Central Bank), several macro-economic policies (i.e. fiscal and monetary policy) are instigated. Thus, like all experts, the government (Central Bank), in order to do a good job of managing the economy, will have to study, analyze and understand the major variables that affect or determine the current behavior of the economy.
Another macro-economic variable that may have a significant impact on a firms’ performance is Exchange Rate. Firms’ financials are presented in terms of the home currency. According to Lars (2003), exchange rate increases or decreases earnings in home currency’s share of total costs. In other words, exchange rate increases or decreases earnings in home currency before interest costs. Against this backdrop, this study examines the impact of macro-economic variables on the Nigerian Corporate Sector performance.
This study is conducted to provide an insight on “macro-economic variables: impact(s) on the Nigerian corporate sector performance.
using Guinness Brewery Lagos State, Nigeria as a case study”. To achieve the objectives of this study, the paper is divided into five interconnected chapters.
Chapter one deals with the background of the study, statements of the problem, objectives of the study, significance of the study, research questions, research hypothesis, scope and limitations of the study, and definitions of terms.
The next chapter presents the review of relevant literature which include: Historical development of Guinness Brewery, meaning of macroeconomics, interest rates, inflation rates, exchange rates, impact of macroeconomics variables on Nigerian corporate sector performance, exchange rate and firms performance, etc
Chapter three examines the research methodology used in the study which are: introduction, research design, study area, population of the study, sample size and technique, method of data collection, research instruments, reliability and validity of instrument, techniques of data analysis and decision criteria for validation of hypothesis.
Chapter four deals with the presentation, analysis and interpretation of data.
While the final chapter examines the summary of the findings, conclusion, recommendations and bibliography.
1.1 STATEMENT OF RESEARCH PROBLEM
Without feedback uncertainty persists; feedback therefore enables the sender and receiver of the information- that is the message, to feel more confident about the accuracy of the message. Dayo (1999)
Research on the relationship between macro-economic variables and a firm’s performance has been ongoing in more advanced countries of the world with little or no research in developing countries of the world such as Nigeria. Macro-economic variables (i.e. economic output, unemployment, employment and inflation) play a vital role in the economic performance of any country. For the past three decades, evidence of key macro-economic variables helping predict the time series of stock returns has accumulated in direct contradiction to the conclusions drawn. The majority of research concentrates on the financial market of the developed countries which are efficient enough and do not suffer from problems found in less developing countries. Considering the matter, the subject of financial market in developing countries still needs lengthy analysis and more research attention. It is this existing gap that informed the rationale behind this study.
1.2 AIMS/OBJECTIVES OF THE STUDY
The general objective of the study is to evaluate the impact of macro-economic variables on the Nigerian corporate sector performance using Guinness Brewery Lagos State Nigeria as a case study. However, the specific objectives are stated as follows:
1. To trace the historical development of Guinness Brewery in Nigeria.
2. To determine the relationship between inflation and profitability in corporate sectors.
3. To ascertain the effect of inflation rate on corporate performance in Nigeria.
4. To find out if there is a significant relationship between exchange rate and corporate performance.
5. To determine how interest rate, affect corporate performance in Nigeria.
6. To investigate the determinants of financial performance of corporate sectors in Nigeria.
7. To examine the relationship between money supply and the performance of corporate organizations in Nigeria.
8. To trace the effect of interest rates and inflation rate on exchange rates.
1.3 RESEARCH QUESTIONS
The key objectives of this current study were developed into a set of questions for the research project. As a result, the study addressed the following key research questions:
a. Is there any relationship between inflation and profitability in corporate sectors?
b. What is the effect of inflation rate on corporate performance in Nigeria?
c. What is the relationship between exchange rate and corporate performance in Nigeria?
d. How does interest rate affect corporate performance in Nigeria?
e. Is there a relationship between money supply and the performance of corporate organizations in Nigeria?
f. Are there determinants of financial performance of corporate sectors in Nigeria?
g. Does interest rates and inflation rate have any effect on exchange rates?
1.4 RESEARCH HYPOTHESES
A hypothesis is a tentative statement which shows causal relationship that exists between two or more variables. Such declared tentative statement is subject to acceptance (confirmation) or rejection, depending on the results that fall out from its empirical verification. (Dode, 2012)
The formulated hypotheses in this research work include:
Hypothesis One
Null Hypothesis:
Ho: Exchange rate does not influence corporate sector performance in Nigeria.
Alternate Hypothesis:
Hi: Exchange rate influences corporate sector performance in Nigeria.
Hypothesis Two
Null Hypothesis:
Ho: There is no relationship between inflation rate and corporate sector performance in Nigeria.
Alternate Hypothesis:
Hi: There is a relationship between inflation rate and corporate sector performance in Nigeria.
Hypothesis Three
Null Hypothesis:
Ho: Foreign direct investment does not influence corporate sector performance in Nigeria.
Alternate Hypothesis:
Hi: Foreign direct investment influence corporate sector performance in Nigeria.
Hypothesis Four
Null Hypothesis:
Ho: There is no relationship between money supply and the performance of corporate organizations in Nigeria.
Alternate Hypothesis:
Hi: There is a relationship between money supply and the performance of corporate organizations in Nigeria.
Hypothesis Five
Null Hypothesis:
Ho: Interest rates and inflation rate do not have any effect on exchange rates.
Alternate Hypothesis:
Hi: Interest rates and inflation rate have effect on exchange rates.
Hypothesis Six
Null Hypothesis:
Ho: Macroeconomic variables do not significantly impact on corporate sectors in Nigeria.
Alternate Hypothesis:
Hi: Macroeconomic variables significantly impact on corporate sectors in Nigeria.
1.5 SCOPE OF THE STUDY
The study provides insight into the impact of macro-economic variables on corporate performance in Nigeria using Guinness Brewery Lagos State, Nigeria as a case study.
The study intends to cover macro-economic variables as it affect Nigeria Port Authority. It also delves into ascertaining both the negative and positive impacts of macro-economic variables on Nigerian corporate sectors and to understand the problems associated with the Macro-economic variables in Guinness Brewery Lagos and proffer solutions to them.
1.6 SIGNIFICANCE OF THE STUDY
The following are the significance of this study.
This study is expected to be relevant to a number of persons and institutions in Nigeria. First, the Federal Government of Nigeria will find the outcome of this study useful in terms of making decisions relating to the macroeconomic environment; in other words, it will help the government to regulate the interest rate, inflation rate, exchange rate and others, with a view to achieving macro-economic stability, so as to assist the companies operating in Nigeria. The Central Bank of Nigeria will definitely find this study very much useful in terms of devising good monetary policy so as to enhance company’s performance and foreign investors into the Nigeria economy.
Similarly, future researchers will find the study useful in terms of reference materials on a similar subject matter.
1.7 LIMITATIONS OF THE STUDY
In pursing this investigation and study, lots of impediments and obstruction were encountered as the research progressed. All these impediments brought about a conspicuous clause with the research work. They include, lack of relevant data due to poor respondent, time constraint and financial conditions.
A. LACK OF RELEVANT DATA: The design of the study was negatively affected by the nature of respondent, which was projected by the workers within the case organization. The non-challant attitude of most employees approached, sample of the studying population was discouraging relevant information needed for the research was not made available easily to the researcher while the available information was censored before being allowed to be used.
B. TIME CONSTRAINT: Time was also limited to the researcher in carrying out the study effectively and efficiently. Time constraint was experienced under dual stages. One was with the sample under population study. They either schedule appointment that they cannot meet up with or complain of limited time within their work though they are willing to respond.
In addition, the other was with the researcher. The research is being carried out within limited semester time table, which include the understudy of other aspect of the course being read. This created a situation of not rescheduling meetings for more comprehensive interviews as may have been required.
C. FINANCIAL CONDITION: Financial condition prevailing within the economic system was a serious impediment. This includes transportation fare to and from school to the case organizations. Also that of extracting the essential information either through printing or photocopying of relevant materials. Finance, thus contributed immensely to limit the entire scope of the research.
Similarly, there is also the problem of generalizing the outcome of the study to other non-manufacturing firms in Nigeria in terms of how macro-economic variables may have affected their performance.
Although all these obstructions were envisaged and experienced, efforts were made to carry on with the research to achieve the expected and desired result.
1.8 DEFINITION OF TERMS
• Macro-economy: is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole, rather than individual markets.
• Impacts: Deals with having an immediate and strong effect on something or somebody.
• Performance: Deals with the way in which somebody does a job, judged by its effectiveness.
TABLE OF CONTENT
PAGE
TITLE PAGE i
CERTIFICATION ii
DEDICATION iii
ACKNOWLEDGEMENTS iv
ABSTRACT v - vi
TABLE OF CONTENTS vii - x
CHAPTER ONE: INTRODUCTION 1
1.0 Background of the study 1 - 3
1.1 Statements of Research problem 4
1.2 Aim/Objectives of the study 4 - 5
1.3 Research questions 5 - 6
1.4 Research hypothesis 6 - 8
1.5 Scope of the study 8 - 9
1.6 Significance of the study 9
1.7 Limitations of the study 9 - 11
1.8 Definitions of terms 11
CHAPTER TWO: LITERATURE REVIEW 12
2.0 Introduction 12
2.1 Historical Development of Guinness Brewery Nigeria 13 – 14
2.2 Overview of Macroeconomics 14 – 17
2.2.1 Meaning of Interest Rates 17 – 18
2.2.2 Meaning of Inflation Rate 18 – 19
2.2.3 Meaning of Exchange Rate 20 – 21
2.2.4 Meaning of Money Supply 21
2.2.5 Meaning of Gross Domestic Product (GDP) 21 – 22
2.3 The Impact of macroeconomic variables on corporate
Sector performance in Nigeria 22 – 25
2.4 Exchange Rate and Firm’s Performance 25 – 26
2.4.1 Determinants of exchange rate 26 – 32
2.5 Inflation rate and firm’s performance 32 – 42
2.6 Interest rate and firm’s performance 42 – 43
2.6.1 Effect of interest rate on financial performance of Nigerian
Corporate sectors 43 – 44
2.6.2 Determinants of financial performance of Nigerian corporate
Sectors 44 – 48
2.7 A comprehensive approach to assessing the impact of
Microeconomic fluctuations on corporate sectors 48 – 52
2.8 Macroeconomic factors and corporate sector earnings 52
CHAPTER THREE: RESEARCH METHODOLOGY 53
3.0 Introduction 53
3.1 Research Design 53 - 54
3.2 Selection of Data 54
3.3 Collection of Data 54 - 55
3.4 Population, Sample and Sampling Procedure 55
3.5 Questionnaire Design 56
3.6 Method of Data Analysis 56 - 57
3.7 Decision Criteria for Validation of Hypothesis 57 - 58
CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND
INTERPRETATION 59
4.0 Introduction 59
4.1 Data Presentation and Analysis 60 - 70
4.2 Test of Hypothesis 70 - 82
CHAPTER FIVE: SUMMARY, CONCLUSION AND
RECOMMENDATION 83
5.1 Introduction 83
5.2 Summary 83 - 84
5.3 Conclusion 84 - 85
5.4 Recommendation 85 - 86
Bibliography 87 - 94
Appendixes 95 - 99