Effect of Financial Structure and Macroeconomic Fundamentals on Firm Profitability

Gbalam Peter Eze and Tamaroukro Timipere Ekokeme
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Gbalam Peter Eze: Department of Banking and Finance, Niger Delta University, Wilberforce Island, Bayelsa State, Nigeria
Tamaroukro Timipere Ekokeme: University of Africa, Toru-Orua, Sagbama, Bayelsa State, Nigeria

International Journal of Research and Scientific Innovation, 2020, vol. 7, issue 2, 114-122

Abstract: The study examined the impact of financial structure and macroeconomic fundamentals on firm profitability. This was aimed at ascertaining how financial structure and macroeconomic fundamentals influence firm profitability. The after effect research design was adopted to examine the dependent and independent variables in retrospect. Historical data spanning 2001 to 2015 was collated and estimated employing the Least Square, Fixed Effects and Random Effects estimations. The empirical results show that debt equity ratio (DER), long term debt equity ratio (LTDER), short term debt equity ratio (STDER), real GDP growth rate (RGDP), and interest rate (IntR) play critical roles in profitability of the firms. In addition, effects of financial structure are more effective when ascertaining the sensitivity of macroeconomic variables that have the potential to improve or degrade the profitability of the firms. Also the effects of firm- specific variables (SIZE and AGE) are more significant given the place of macroeconomic environment in the life of the firms. Although further observations indicate that GDP and interest rate as indicators of overall economy in relatively to their impact on firm profitability, the authors recorded insignificant impact. The result shows that both economic indicators are negatively related with the profitability of firm in a case of non-financial sector. The study conclude that, in uncertain and turbulence economy, financial structure effects on firm profitability is found to be relatively dynamic and affects other corporate decision making process differently.

Date: 2020
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