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ABSTRACT

Firms determining factors have been identified to have an immeasurable role in enhancing the financial performance of companies, but available literatures in this area are mixed and inconclusive. Owing to these mixed and inconclusive findings, this study therefore examines the impact of both internal and external factors on the financial performance of listed consumer goods firms in Nigeria. The population of the study consists of twenty-seven (27) listed consumer goods firms as at 31st December 2015. Fifteen of the listed consumer goods firms were selected to form the sample of the study for the period of eleven years (2006-2016). The study employed multiple regressions as tool for analysis. Secondary data obtained from the financial statements of the companies was analysed. The result revealed that liquidity, leverage and firm size are the most important determinants of financial performance. Hence, all three variables are positively and significantly related to financial performance. While, inflation rate and GDP growth rate are not significantly related to financial performance of listed consumer goods firms in Nigeria. For consumer goods firms to achieve a greater profit and competitiveness in the market, it is therefore recommended that the companies should give more attention to firm specific characteristics (liquidity, leverage and firm size) and also conduct careful evaluation by partnering with government to check activities of macroeconomic indicators (GDP growth rate and inflation rate) that influence the financial performance of the company before making major business decision as this will go a long way to improving their financial performance.

 

 

TABLE OF CONTENTS

DECLARATION …………………………………………………………………………………………………… ii
CERTIFICATION ………………………………………………………………………………………………… iii
DEDICATION ……………………………………………………………………………………………………… iv
ACKNOWLEDGEMENTS……………………………………………………………………………………… v
ABSTRACT ……………………………………………………………………………………………………….. vii
TABLE OF CONTENTS ……………………………………………………………………………………… viii
LIST OF TABLES …………………………………………………………………………………………………. x
CHAPTER ONE :INTRODUCTION
1.1 Background to the study …………………………………………………………………………………. 1
1.2 Statement of the problem ………………………………………………………………………………… 4
1.3 Research questions…………………………………………………………………………………………. 7
1.4 Objectives of the study ……………………………………………………………………………………. 8
1.5 Statement of hypotheses………………………………………………………………………………….. 8
1.6 Scope of the study ………………………………………………………………………………………….. 9
1.7 Significance of the study …………………………………………………………………………………. 9
CHAPTER TWO :LITERATURE REVIEW
2.1 Introduction ………………………………………………………………………………………………… 11
2.2Conceptual framework …………………………………………………………………………………… 11
2.3 Review of empirical studies …………………………………………………………………………… 25
2.4 Theoretical framework ………………………………………………………………………………….. 35
2.5 Summary ……………………………………………………………………………………………………. 37
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CHAPTER THREE :RESEARCH METHODOLOGY
3.1 Introduction ………………………………………………………………………………………………… 38
3.2 Research design …………………………………………………………………………………………… 38
3.3 Population and sample size of the study …………………………………………………………… 38
3.4 Sources and method of data collection …………………………………………………………….. 39
3.5 Technique of data analysis and justification ……………………………………………………… 39
3.6 Variables measurement …………………………………………………………………………………. 40
3.7 Model specification………………………………………………………………………………………. 42
CHAPTER FOUR :DATA PRESENTATION AND ANALYSIS
4.1 Introduction ………………………………………………………………………………………………… 44
4.2 Descriptive statistics …………………………………………………………………………………….. 44
4.3 Correlation Matrix ……………………………………………………………………………………….. 46
4.4 Presentation of regression result ……………………………………………………………………… 48
4.5 Robustness test ……………………………………………………………………………………………. 49
4.6 Discussion of regression result…………………………………………………………51
4.7 Hypothesis Testing ………………………………………………………………………………………. 55
4.8 Policy implications ………………………………………………………………………………………. 58
CHAPTER FIVE :SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary ……………………………………………………………………………………………………. 60
5.2 Conclusion ………………………………………………………………………………………………….. 61
5.3 Recommendations………………………………………………………………………………………… 62
5.4 Limitations of the study ………………………………………………………………………………… 63
5.5 Suggestions for further Research …………………………………………………………………….. 63
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CHAPTER ONE

INTRODUCTION
1.1 Background to the study
Performance of a firm or an industry is very important as it shows the results achieved over a time period. Firm performance is dependent upon micro economic variables and macro-economic variables. Micro-economic variables are the internal firm specific variables. Management is able to control these variables. Macro-economic variables are the external variable which the management is not able to control.
Financial performance is a key concept in the economic environment, influenced by rapid changes, fierce competition and globalization. Firm financial performance in broader sense refers to the degree to which financial objective being or has been accomplished and is an important aspect of finance and firm‟s determinant. It is the process of measuring the result of a firm‟s policies and operations in monetary terms. Financial performance consist of a firms‟ profitability, that is, how large the revenues exceed the costs incurred in generating them. Financial performance can be defined as a measurement of the results of a firm‟s polices and operations in monetary terms. In assessing the overall financial condition of a company, the income statement and the statement of financial position are important reports, as the income statement captures the company’s operating performance and the statement of financial position shows its net worth.
Profit is indispensable for the existence of business. It is the driving force for the business enterprises. The perpetual existence of the firms depends on the profit earning capacity of the firm, which is considered to be the foremost factor in influencing the reputation of the firm. Profit is an absolute term, whereas, the profitability is a relative concept. Profit refers to the total income earned by the enterprise during the specified period of time, while profitability
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refers to the operating efficiency of the enterprise. Profitability delivers the evidence about the company‟s ability to spawn earnings. An enhancement in profitability sparks to an increase in stock price, thereby registering capital gains. Financial gurus consider profitability as a measure of efficiency. Profitability reveals the snapshot measure of corporate success and thus serves as a prime metric of economic performance. A firm‟s financial performance and which factors have an effect on it is a recurring topic in academic literature. Many aspects of a firm have been linked to financial performance in order to determine the extent of influence these have on it. It is used to develop an understanding of what factors can determine the financial performance of a firm and to what extent. However, not one common collection of determinants has yet been established (Nikolaus, 2015).There are on the one hand studies that focus on the effect of corporate governance aspects on performance such as: Hu‟s and Izumida‟s (2008) causal analysis of ownership concentration and corporate performance. Other studies focused on capital structure and, more precisely, on leverage and its relationship with performance. An example of such a study is one by Vithessonthi and Tongurai (2015), who compare the effect of leverage on performance in domestically-oriented and internationally-oriented firms.In order to add to the few studies that combine determinants of different natures and also take less developed countries into account this study aims to investigate the determining factors of financial performance of listed Consumer goods firms in Nigeria.
The Consumer Goods sector which is one of the largest industries worldwide is being faced with numerous challenges. The Nigerian manufacturing sector which is a subsector under the Consumer Goods industry has performed dismally in 2016 as manufacturers faced several challenges which affected them negatively (Agency report, 2017). Operators said that the sector was faced with myriads of challenges ranging from the scarcity of foreign exchange, infrastructure deficit, high banking charges and lack of raw materials. About 272 firms were
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shut, while some reduce their production, staff strength and remuneration of workers (Agency report, 2017). The survival of the manufacturing sector was threatened by the fact that more than half of the firms which survived the massive shut down were classified as ailing. The entire business terrain was adversely affected by the poor power supply, bad roads, high interest rate and high cost of energy which contributed to high cost of production (Agency report, 2017). This has posed serious adverse effect on the liquidity of the firms and the inflation rate of the economy as a whole. Another major challenge was the intense scarcity of foreign exchange which distorted the ability of manufacturers to import raw materials for production thereby adversely affecting the liquidity of the firms. Similarly, one of the manufacturers operators lamented on the foreign exchange rate loss of about N500billion reflected in their account which led to factory closure, unemployment (which affected the GDP of the economy) and loss of investment(which also affected the size of the investment contributed in the company, thereby distorting firm size). According to him, the exchange rate losses required additional working capital to shore up cash differences between N320 and N197 (Agency report, 2017). The Managing Director of May and Baker, said the inability of manufacturers to access foreign exchange through the interbank affected industrial production and contributed to inflation. Erisco Foods Limited, an indigenous tomato paste manufacturer, relocated its 150 billion dollars tomato paste processing plant to china due to the same problem. Erisco Foods has a production capacity of 450,000 metric tons of tomato paste and had 22 brands with over 2,000 workers in Nigeria (Agency report, 2017).
The financial performance of firms could be affected by both internal and external factors. The internal factors are those management controllable factors which account for the inter-
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firm differences in profitability. On the other hand, external factors are uncontrollable factors which affect firms decision and which management have no control over. However, factors such as growth in money supply, interest rate, inflation rate and gross domestic product are macroeconomic or market-specific factors which are out of control of management. In line with the above explanation, the study therefore combined three firm specific variables (liquidity, leverage and firm size) and two macroeconomic variables (GDP growth rate and inflation rate) against the financial performance of consumer goods firms in Nigeria. The choice of these five variables was based on their empirical relationship with the dependent variable, also, this variables kept reoccurring in the literatures as viable determinants of financial performance as previous researchers likeDuraj and Moci (2015), Mirza and Javaed (2013) andOngor and Kusa (2013)among others all made use of at least one of these variables and their findings proved these variables to be significant determinants of firm‟s financial performance. The Consumer Goods sector in Nigeria has significant scope to expand. Poverty levels are still quite high, with food and other necessities dominating consumer budgets. For this reason, the food sub-sector of Consumer Goods has a very large market to cater for, while penetration rates in the other categories still have significant room to expand. In this study, the key determinants (liquidity, leverage, firm size, GDP growth and inflation) of the financial performance of the Consumer Goods sector are analysed.
1.2 Statement of the problem
The Consumer Goods sector is seen as one of the fastest growing sectors in the country with its key drivers as large market size, youthful population and urbanization. The consumer goods sector which is one of the largest industries worldwide is being faced with numerous challenges. This sector has performed poorly in 2016 as manufacturers faced several
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challenges which affected them negatively (Agency report, 2017).Operators said that the sector was faced with multiple challenges ranging from the scarcity of foreign exchange, infrastructure deficit, high banking charges and lack of raw materials which led to the shutdown of about 272, while some reduce their production, staff strength and remuneration of workers (Agency report, 2017). The survival of the manufacturing sector was threatened by the fact that more than half of the firms which survived the massive shutdown were classified as incapacitated. The entire business terrain was adversely affected by the poor power supply, bad roads, high interest rate and high cost of energy which contributed to high cost of production (Agency report, 2017). This has posed serious adverse effect on the liquidity of the firms and the inflation rate of the economy as a whole. Another major challenge was the intense scarcity of foreign exchange which distorted the ability of manufacturers to import raw materials for production thereby adversely affecting the liquidity of the firms. Having discussed some of the practical issues affecting this sector, there are some pertinent theoretical issues ranging from literature gaps, variable measurement gaps as well as domain gaps which serves as a premise for conducting this research. There has been inconclusive literature and continuous debate on which variable constitute an appropriate determinants of financial performance of firms (Mirza and Javed, 2013). There is wider gap specifically in the case of growing economies like Nigeria, because most of the research done is based on data gotten from developed economies (Duraj and Moci, 2015; Vintilă andNenu; Xu andBanchuenvijit, 2015 2015) among others.The purpose of this study is to empirically investigate the effect of Liquidity, Leverage, Firm size, GDP growth and Inflation rate among other determinants on the financial performance of consumer goods firms in Nigeria.
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The choice of these five variables was based on the prevailing problems faced by the consumer goods sector especially the manufacturing subsector which has been discussed above. It was also as a result oftheir empirical relationship with the dependent variable, as previous researchers likeDuraj and Moci (2015), Mirza and Javaed (2013) andOngor and Kusa (2013)among others all made use of at least one of these variables and their findings proved these variables to be significant determinants of financial performance, even though they also had mixed findings as regards the direction of their significant level. However, to the best of the researcher‟s knowledge, none of these variables have been used in determining the financial performance of consumer goods firms in Nigeria. Very fewstudies conducted in relation to firm performances have focused on both internal and external factors that affect the overall performances of firms (Chantapong, 2005;Olweny and Shipho, 2011). However, this study intends to consolidate and enrich the empirical literatures with focus on some of the firm specific factors and macroeconomic factors that affect firm‟s financial performance in relation to the Consumer Goods industry in Nigeria. To the best of our knowledge, no recent similar study in Nigeria has been conducted in this sector. The reason of cause may not be far from the fact that the sector has been recently restructured as the likes of the food and beverages industry has been merged with other house hold and personal care products to form the consumer goods industry.
Most literatures focus on factors influencing the performance of banks (Osuka and Richard, 2013; Ayanda, Christopher and Mudashiru, 2013) and insurance companies (Malik, 2011; Charumathi, 2012; and Wanjugu, 2014). Similarly, the outcome of the studies conducted in developed and some developing countries may not be applicable to Consumer Goods firms in Nigeria simply because the environment in which these firms operate differs in terms of supervision, regulation and operation. In addition, variables that were used in other studies, especially from developed market may not be consistent with the system of operation in the
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Nigeria Consumer Goods industry. To this end, the relationship between firm determinants and financial performance of Consumer Goods firms in Nigeria calls for an empirical investigation. Therefore, mere extension of the findings of studies in other countries with their different conditions to Nigeria is not possible. Profitability is a vital concern to all groups who have a direct or indirect interest in the firm. In spite of these vital roles that profit plays in the going concern of firms, the profitability status of most Consumer Goods firms operating in Nigeria in relation to liquidity, leverage, firm size GDP rate and inflation rate of the firms have not attracted much attention of researchers in the area of finance. This may be attributed to lack of thorough evaluation of factors (internal and external) that play critical role in profit realization of Consumer Goods firms in Nigeria. Therefore, it is of interest to know the extent to which these factors (liquidity, leverage, GDP rate and inflation rate) affect the financial performance of listed Consumer Goods firms in Nigeria. The firm specific and macroeconomic factors of the Consumer Goods firms are to be investigated to provide valuable information in regards to their effects on performance.
1.3 Research questions
The study therefore sought to address the following questions:
1. Does liquidity significantly affect the financial performance of listed Consumer Goods firms in Nigeria?
2. Does leverage significantlyaffect the financial performance of listed Consumer Goods firms in Nigeria?
3. Does firm size significantlyaffect the financial performance of listed Consumer Goods firms in Nigeria
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4. Does GDP growth ratesignificantly affect the financial performance of listed Consumer Goods firms in Nigeria?
5. Does inflation rate significantly affect the financial performance of listed Consumer Goods firms in Nigeria?
1.4 Objectives of the study
The main objective of this study was to investigate the determining factors of financial performance of listed Consumer Goods firms in Nigeria. The specific objectivesinclude:
1. To determine the effect of Liquidity on the financial performance of listed Consumer Goods firms in Nigeria.
2. To examine the effect of Leverage on the financial performance of listed Consumer Goods firms in Nigeria.
3. To evaluate the effect of firm size on the financial performance of listed Consumer Goods firms in Nigeria.
4. To ascertain the effect of GDP growth rate on the financial performance of listed Consumer Goods firms in Nigeria.
5. To investigate the effect of Inflation rate on the financial performance of listed Consumer Goods firms in Nigeria.
1.5 Statement of hypotheses
In order to achieve the objectives of the study, the following hypotheses are raised in null form regarding the determinants of financial performance of Consumer Goods firms in Nigeria. H01 Liquidity has no significant effect on the financial performance of Consumer Goods firms in Nigeria.
H02 Leverage has no significant effect on the financial performance of Consumer Goods firms in Nigeria.
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H03 Firm size has no significant effect on the financial performance of Consumer Goods firms in Nigeria. H04 GDP growth rate has no significant effect on the financial performance of Consumer Goods firms in Nigeria. H05 Inflation rate has no significant effect on the financial performance of Consumer Goods firms in Nigeria.
1.6 Scope of the study
This study was confined only to know the key determinants of financial performance of listed Consumer Goods firms by analysing the financial statements starting from 2006 to 2016 fiscal year.The span of 11 years selected is to allow for a wider coverage and ensure that recent data is collected and included in the study. The firms under study include all the listed Consumer Goods firms in the Nigerian stock exchange as at 31st December, 2015.
1.7 Significance of the study
Although there have been numerous studies on Financial performance of firms in other countries where Consumer Goods are relatively large and well developed compared to Consumer Goods in Nigeria; it is uncommon to find such studies in sufficient number in Nigeria. This study, as an attempt to assess the determinants of financial performance of Consumer Goods in Nigeria, provides evidence on what impact both the firm-specific factors and the macroeconomic factors have on the Consumer Goods financial performance in Nigeria. Analysing and Understanding the impact of different factors on the financial performance of Consumer Goods in Nigeria is a major stepping stone to enlighten what should be done if financial performance is to be achieved.
The findings of the study will also be of benefits to managers and others interested in the Consumer Goods firm, for it will show the level of financial performance the Consumer
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Goods operating in the country have reached. This in turn helps them to know the factors affecting financial performance and thereby take appropriate actions to increase financial performance of firms in this sector and the study will also initiate other Consumer Goods industry to give due attention on the management of identified variables. It is hoped that the outcome of this study will also provide an insight of the Consumer Goods industry to other researchers. Government is interested in knowing which companies operate successfully or failed to take the necessary measures to avoid crises of the bankruptcy in these companies. More so, customers are interested in knowing the ability of Consumer Goods companies to pay their obligations based on the indicators of success of the companies.Business professionals and policy makersare interested in this study so as to render professional advice and come up with policy to improve the sector. The findings from this study contribute to finance literature by providing evidence that supports the positive role of firms‟ characteristics in determining the financial performance of listed Consumer Goods firms in Nigeria. Additionally, the results could provide accounting practitioners as well as regulators with valuable insight into the complex interactions between different types of firms‟ characteristics and the financial performance of Consumer Goods companies.
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