Interactions between Exchange Rate and Financial Performance Indicators in Nigeria Beer Industry: Evidence from Nigeria Breweries Plc

Abstract

The study aims at evaluating the nature and magnitude of the interactions between foreign exchange rate and selected financial performance indicators in Nigeria beer industry from 2000 to 2013. Granger Causality procedure, 2-step cointegration and error correction model of Engle and Granger and correlation approach was adopted in the analysis. The Augmented Dickey Fuller (ADF), Phillips-Perron (PP) and the Kwiatkowski-Phillips-Schmidt-Shin (KPSS) procedures were applied to test for series stationary. All the series were found non stationary but achieved stationary at second difference. Earnings Per Share has a short term negative and insignificant effect while prices of equity shares, net asset value per share and price-earnings ratio are positively and insignificantly related to foreign exchange rate in the short run. All the variables shared negative and insignificant long run relationship with exchange rate. There is a unidirectional causality running from earnings per share to exchange rate and from exchange fluctuations rate to net asset value per share. The implication of the findings is that foreign exchange rate adversely affects earnings of firms in Nigeria brewery industry. Growth in earnings of firms in Nigeria brewery industry can cumulatively contribute to lowering the rate at which naira exchanges for other foreign currencies.

DOI: 10.5901/ajis.2014.v3n6p341