Re-Appraising the Factors Leading to Stock Market Melt-Down: Is Monetary Policy, Exchange Rate and Interest Rate of Any Influence

This study reappraises the factors contributing to stock market meltdowns, with a particularemphasis on the performance of quoted manufacturing firms in Nigeria. It examines the
relationship between the dependent variables: Return on Assets (ROA), Return on Equity
(ROE), and Net Profit Margin (NPM) and the independent variables: Monetary Policy Rate
(MPR), Real Effective Exchange Rate (REER), and Interest Rate (INTR). Grounded in
stakeholder theory, the research formulated three hypotheses to guide the investigation.
Adopting an ex post facto research design, the study utilizes a cross-sectional time-series
approach with panel data from 2014 to 2023, sourced from the Central Bank of Nigeria (CBN)
Statistical Bulletin and annual reports of the firms under review. Analytical tools such as EViews 10.0 was employed to explore the complex interactions between these macroeconomic
determinants and the financial outcomes of quoted manufacturing firms. The descriptive
statistics summarize the dataset’s features. For the unit root test, all variables were stationary
at level I(0) except for the Monetary Policy Rate, which was stationary at second difference
I(2), and Return on Assets, Return on Equity, and Net Profit Margin, which were stationary at
first difference I(1). Tests for serial correlation and heteroskedasticity confirmed that the
model’s residuals are independent and exhibit constant variance. Findings from the panel least
squares regression reveal that the Monetary Policy Rate (MPR), Real Effective Exchange Rate
(REER), and Interest Rate (INTR) collectively have a significant impact on the profitability of
quoted manufacturing firms. The study rejects the null hypotheses for all three models,
confirming their significant influence on Return on Assets (ROA), Return on Equity (ROE), and
Net Profit Margin (NPM). Based on the findings outlined above, it is recommended that
policymakers consider the implications of macroeconomic factors such as the MPR, REER,
and INTR on the profitability of manufacturing firms. Specifically, strategies aimed at
stabilizing these factors could enhance the financial performance of these firms in Nigeria.
Additionally, manufacturing firms should closely monitor these macroeconomic variables and
adjust their strategies to mitigate the negative effects of fluctuating interest rates and exchange
rates. Future research could explore additional factors that influence profitability and expand
the analysis to other sectors for a more comprehensive understanding of the broader economic
impacts.