Foreign Exchange Risk Management and Business Performance of Selected Manufacturing Companies in Nigeria (Published)
In Nigeria’s manufacturing sector, the perpetual fluctuations in the naira’s value, combined with the country’s heavy reliance on imported goods such as raw materials, equipment, and technological advancements, have catapulted foreign exchange risk to the forefront of concerns. This research delves into the impact of mitigating foreign exchange risk on the success of a group of Nigerian manufacturing companies, with a particular emphasis on three critical aspects: the effects of exchange rate changes on international transactions, financial statements, and the broader economy. The study’s objective was to uncover how these factors interplay with financial performance, operational efficiency, and competitiveness. To achieve this, the research employed a retrospective design, gathering data from the audited financial statements of 15 manufacturing firms listed on the Nigerian Exchange Group between 2020 and 2024. Supplemental data was sourced from the Central Bank of Nigeria and the National Bureau of Statistics, providing a comprehensive dataset. The analysis utilized panel regression, with the Hausman test serving as a guide to determine the most suitable model. The results revealed a significant correlation between adept foreign exchange risk management and enhanced business outcomes. Notabll, strategic management of transaction and economic exposure yielded substantial benefits for firm performance, whereas managing translation exposure had a pronounced positive effect on operational efficiency. Ultimately, the study affirms that proactive management of foreign exchange risk is pivotal in enabling firms to navigate economic turbulence while maintaining profitability, cost control, and a competitive edge. In light of these findings, the research advises manufacturing companies to establish robust treasury management practices, leverage available risk-mitigation tools, and prioritize accurate exchange rate forecasting to minimize the adverse effects of currency volatility.
Keywords: Business Performance, Manufacturing Companies, Nigeria, Risk Management, economic exposure, foreign exchange risk, hedging, transaction exposure, translation exposure