Effects of Exchange Rate Fluctuations on the Financial Performance of Manufacturing Companies in Nigeria

ABSTRACT The problem of fluctuating exchange rates has always been an issue affecting the financial progress and performance of manufacturing companies in Nigeria. Therefore, this study investigates exchange rate fluctuation implications on the financial performance of manufacturing companies in Nigeria over the years due to the country’s heavy reliance on imported raw materials and machinery. The research employs a quantitative approach analyzing secondary data from the annual reports of selected publicly listed manufacturing firms in Nigeria over a five-year period from 2019 to 2023 using multiple regression analysis data collected. The findings reveal a strong negative correlation between exchange rate (EXRATE) with ROA (r = -0.276, p < 0.01) and NPM (r = -0.257, p < 0.01). However, EXRATE shows no significant relationship with ROE (r = -0.037, p = 0.716), suggesting that exchange rate fluctuation movements may not have a direct effect on shareholders' returns. Regarding the control variables, Firm Size (MSIZE) does not show any significant correlation with the performance metrics (ROA, ROE, NPM), suggesting that size differences among firms in the sample may not strongly influence performance. Similarly, Interest Rate (INTR) is negatively correlated with NPM (r = -0.212, p < 0.05), suggesting that higher interest rates could slightly erode profit margins. However, its relationship with ROA and ROE is not statistically significant. Overall, these findings suggest that exchange rate movements and interest rates, though not always significant, could influence financial performance particularly in terms of profitability margins and asset utilization. The study recommends the adoption of robust foreign exchange risk management strategies, improved government policy support, and diversification of input sourcing to mitigate the adverse effects.