THE IMPACT OF MACROECONOMIC FACTORS ON FIRM PERFORMANCE

ABSTRACT

The role of macroeconomics on firm performance has attracted attention of economists for decades due to the complexity in formulating corporate policies in achieving success among many organizations. This study aims to examine the relationship between macroeconomics and performance of firms listed on the Ghana Stock Exchange (GSE). Following literature, ROE and ROA were selected as proxy for firm performance and suggested independent variables included were growth in the sales of the firms, total assets, leverage, dividend pay-out, and key macroeconomic variables (GDP, inflation, interest, and exchange rates) using a panel data running from 2007 to 2015. The study significantly established a suitable link existing between macroeconomic variables and firm performance and further argued that macroeconomic variables alone lack enough explanatory power to explain variations within firm performance but integrating with financial indicators like firms’ dividend pay-out, growth in company sales, leverage, and total assets provide a considerable explanatory power. The study further found that whilst inflation negatively affects ROA, interest rate also negatively affects ROE. The study further establish that dividend pay-out induces firm performance (both ROE and ROA). The study also finds that leverage affects firm performance (ROE) negatively whilst it affects ROA positively. Again, the study found that growth in company sales positively affects firm performance (ROE and ROA). The number of total assets (SIZE) owned by a company significantly affect its performance (ROA). The study therefore concluded that macroeconomic variables especially inflation and interest rates are significant drivers for financial performance among Ghanaian firms and thus, any variable that affects inflation and/or interest rates will also likely affect firm performance. The study finally recommends Ghanaian firms to employ relevant information from the domestic and global economy necessary for designing policies that enhance their performance.