The relationship of macroeconomic factors and financial performance of the five firms listed in the energy and petroleum sector of the NSE
Date
2016
Authors
Rao, Desmond Tutu
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Journal ISSN
Volume Title
Publisher
Strathmore University
Abstract
Potential investors in any sector seek to establish the profitability of the sector prior to investment. The key factors that would affect the variability of the expected returns ought to be taken into consideration and appropriate measures taken to mitigate any inappropriate conditions. The total risk of the return of any investment is determined by the effect of its systematic risk as well as the unsystematic risk. Systematic risk is vulnerability to events that affect all sectors of an economy and can be summed as macroeconomic factors and is the focus of this research. On the other hand, unsystematic risk refers to microeconomic factors which are unique to a particular industry. The key macroeconomic variables used in this research include inflation rate, interest rate, exchange rates, the GDP growth and oil price. The aim of this study is to analyze the impact of macroeconomic factors on the financial performance of the five companies listed in the Energy and Petroleum sector of the NSE. The period of study was from the year 2004 to 2015. A descriptive research constituting collection and analysis of secondary data. The Earnings Per Share was used as a measure of the financial performance. The Arbitrage Pricing Theory model was used to analyze the panel data obtained after which various statistical tests were carried out on the data.
Key findings from the research were that there was a significant relationship between the financial performance of firms listed in the Energy and Petroleum sector of the NSE and the macroeconomic variables. The oil price and interest rates have a significant effect on the financial performance. This study will go a long way in guiding decision making in the Energy and Petroleum sector both at the entrant level and those with a going concern. This should guide managers in formulating and executing strategic decisions in terms of timing and actions to undertake so as to enhance their future performance and survival within the industry.
Description
Keywords
Macroeconomics, Financial performance, Energy and petroleum, NSE, Nairobi Securities Exchange