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Does Exchange Rate Matter in Profitability of Listed Companies in South Africa? An Empirical Approach

Author

Listed:
  • Michael Yeboah

    (Department of Accounting and Finance, University of Pecs Lecturer, Kumasi Technical University, Ghana,)

  • Andras Takacs

    (Department of Accounting and Finance, Faculty of Business and Economics, University of Pecs, Hungary)

Abstract

Exchange rate fluctuation is phenomenal in South Africa. This study thus estimates the impact of exchange fluctuation on the profitability of listed mining and manufacturing companies over 2000-2014. The study controlled for company level factors including liquidity, leverage, firm size, tangibility, the opportunity for growth and interest cover. The macroeconomic factors controlled for were interest rate and economic growth. The study used random effect model for estimation. Profitability was measured as return on asset. Exchange rate fluctuation had a significant negative impact on return on the asset when both industries are considered. However, exchange rate fluctuation had no significant impact on return on the asset in the mining industry but in the manufacturing industry. Liquidity, Interest cover, and tangibility had a significant positive impact but leverage had a significant negative impact on return on asset. At the macro level, interest rate had a significant positive impact but economic growth had no significant impact on return on asset. The study recommends that managers of manufacturing companies should adopt strategies such as currency swaps, future contract, and hedging to avert exchange rate fluctuation risk.

Suggested Citation

  • Michael Yeboah & Andras Takacs, 2019. "Does Exchange Rate Matter in Profitability of Listed Companies in South Africa? An Empirical Approach," International Journal of Energy Economics and Policy, Econjournals, vol. 9(6), pages 171-178.
    • Handle: RePEc:eco:journ2:2019-06-21
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    References listed on IDEAS

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    Cited by:

    1. Joel Hinaunye Eita & Charles Raoul Tchuinkam Djemo, 2022. "Quantifying Foreign Exchange Risk in the Selected Listed Sectors of the Johannesburg Stock Exchange: An SV-EVT Pairwise Copula Approach," IJFS, MDPI, vol. 10(2), pages 1-29, April.
    2. Debby Wulandari & Agus Harjito, 2021. "The effect of interest rates, exchange rates and capital structure on banking profitability of BUMN and Private Go Public in Indonesia," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 10(3), pages 338-351, April.
    3. Mutambara Tatenda Emmanuel & Nyatanga Phocenah & McCullough Kerry, 2023. "The Impact of Working Capital and Macroeconomic Variables on the Profitability of Listed Industrial Firms in South Africa," International Journal of Economics and Financial Issues, Econjournals, vol. 13(5), pages 32-42, September.
    4. Wabei Catherine Mutafu, 2023. "Evaluation of the Impact of the Lusaka Stock Exchange on the Financial Performance of Telecommunication Companies in Zambia: A Study of Airtel Zambia Limited (2012 – 2021)," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(6), pages 494-508, June.

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    More about this item

    Keywords

    Exchange Rate; mining companies; Profitability; South Africa;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • L72 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Other Nonrenewable Resources
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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