Responsiveness of Financial Performance to Macroeconomic Indicators in Nigeria Oil and Gas Firms
The aim of the study was to examine the effect of foreign exchange and interest rates on return on equity of oil
and gas firms in Nigeria. Data for the analysis were sourced from annual reports and accounts of the firms under study.
Multiple regression was applied for the test of hypotheses. Correlation analysis was used for test of relationship while
regression analysis was used to test the level of influence of the independent variables (foreign exchange and interest rate) on
the dependent variable (return on equity).The result of the analysis depicts that interest rate relate positively with return on
equity, while foreign exchange rate relate negatively with return on equity. The relationships were both insignificant. On
causality, a unidirectional causality was found running from foreign exchange rate to return on equity while a bidirectional
causality ran from foreign exchange rate to interest rate and vice versa. The interactions between and among the variables
were found to be sustainable in the long term. The findings have far reaching implications, in the sense that it encourages an
increased interest rate for an enhanced financial performance in the oil and gas sector. Hence, as the naira strengthens against
the dollars, the oil and gas firms perform better because most of the material resources employed in the activities of the firms
are imported from the home country of the firms. The technical staff, who get their salaries in foreign currencies, also add to
pressure in sourcing the scarce commodity. When the rate of foreign exchange is lowered, the firms perform better as they
will need fewer naira to buy more dollars. The wider implication is that there could be retrenchment in the oil and gas firms
when dollars are soaring against the naira. Conclusively, interest rates should move in opposite direction with foreign
exchange rate for an enhanced financial performance in the oil and gas industry in Nigeria.
Keywords - Interest Rate, Foreign Exchange, ROE, Regression, Oil, Gas, Nigeria.