IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/118202.html
   My bibliography  Save this paper

Improved Financial Performance Without Improved Operational Efficiency: The Case of Nigerian Firms

Author

Listed:
  • Evans, Olaniyi

Abstract

Is financial performance of firms really on the increase in Nigeria? If so, what about operational efficiency of these firms? Though profits are on the rise, can these companies possibly be efficient, in spite of the problems inherent in the economy? In order to answer these questions, this study uses four different panel unit root tests to establish the stationarity of financial performance and operational efficiency in Nigeria, using one key performance variable (i.e., profit after tax) and three efficiency variables (i.e., return on assets ratio, asset turn ratio and portfolio activity & resilience) with a cross section of the 20 most quoted companies on the Nigerian Stock Exchange. The study shows that profit after tax is non-stationary while return on assets, portfolio activity & resilience and asset turn ratio are stationary. In other words, while financial performance (measured as profit after tax) is increasing in Nigeria, operational efficiency (measured as Return on Assets, Portfolio Activity & Resilience and Asset Turn Ratio) is stagnant. What it means is that while corporate profits are on the rise, the companies are not operationally efficient.

Suggested Citation

  • Evans, Olaniyi, 2018. "Improved Financial Performance Without Improved Operational Efficiency: The Case of Nigerian Firms," MPRA Paper 118202, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:118202
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/118202/1/Corporate%20Performance%20%26%20Corporate%20Efficiency%20in%20Nigeria.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Klapper, Leora F. & Love, Inessa, 2004. "Corporate governance, investor protection, and performance in emerging markets," Journal of Corporate Finance, Elsevier, vol. 10(5), pages 703-728, November.
    2. Zeynel Abidin Ozdemir, 2008. "Efficient market hypothesis: evidence from a small open-economy," Applied Economics, Taylor & Francis Journals, vol. 40(5), pages 633-641.
    3. Tsangyao Chang & Ching-Chun Wei & Chien-Chung Nieh, 2005. "Is Per Capita Real GDP Stationary? Evidence from Selected African Countries Based on More Powerful Nonlinear (Logistic) Unit Root Tests," Economics Bulletin, AccessEcon, vol. 3(24), pages 1-9.
    4. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    5. Siva Reddy Kalluru & Sham Bhat K, 2009. "Determinants of Cost Efficiency of Commercial Banks in India," The IUP Journal of Bank Management, IUP Publications, vol. 0(2), pages 32-50, May.
    6. Tsangyao Chang & Hsu-Ling Chang & Hsiao-Ping Chu & Chi-Wei Su, 2006. "Is per capita real GDP stationary in African countries? Evidence from panel SURADF test," Applied Economics Letters, Taylor & Francis Journals, vol. 13(15), pages 1003-1008.
    7. Timothy Besley & Torsten Persson, 2014. "Why Do Developing Countries Tax So Little?," Journal of Economic Perspectives, American Economic Association, vol. 28(4), pages 99-120, Fall.
    8. Maddala, G S & Wu, Shaowen, 1999. "A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-652, Special I.
    9. Saranga, Haritha & Nagpal, Rajiv, 2016. "Drivers of operational efficiency and its impact on market performance in the Indian Airline industry," Journal of Air Transport Management, Elsevier, vol. 53(C), pages 165-176.
    10. Norbert Edomah & Chris Foulds & Aled Jones, 2016. "Energy Transitions in Nigeria: The Evolution of Energy Infrastructure Provision (1800–2015)," Energies, MDPI, vol. 9(7), pages 1-18, June.
    11. Gudiel Pineda, Pedro Jose & Liou, James J.H. & Hsu, Chao-Che & Chuang, Yen-Ching, 2018. "An integrated MCDM model for improving airline operational and financial performance," Journal of Air Transport Management, Elsevier, vol. 68(C), pages 103-117.
    12. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April.
    13. Donatiello, Nicholas & Larcker, David F. & Tayan, Brian, 2016. "CEO Pay, Performance, and Value Sharing," Research Papers 3399, Stanford University, Graduate School of Business.
    14. Chen, Chiung-Jung & Yu, Chwo-Ming Joseph, 2012. "Managerial ownership, diversification, and firm performance: Evidence from an emerging market," International Business Review, Elsevier, vol. 21(3), pages 518-534.
    15. Kumar Tiwari, Aviral & Shahbaz, Muhammad & Shahbaz Shabbir , Muhammad, 2012. "Is Per Capita GDP Non-linear Stationary in SAARC Countries?," European Economic Letters, European Economics Letters Group, vol. 1(1), pages 1-5.
    16. Ahmadu Sanda & Aminu S. Mikailu & Tukur Garba, 2005. "Corporate governance mechanisms and firm financial performance in Nigeria," Working Papers 149, African Economic Research Consortium, Research Department.
    17. Osman Gök & Sinem Peker, 2017. "Understanding the links among innovation performance, market performance and financial performance," Review of Managerial Science, Springer, vol. 11(3), pages 605-631, July.
    18. Raymond Osi Alenoghena & Olaniyi Evans, 2015. "Corruption Effects on Nigeria: Aggregate and Sectoral Estimates Using VAR," Journal of Economic and Financial Studies (JEFS), LAR Center Press, vol. 3(3), pages 41-48, June.
    19. Isaac Nwaogwugwu & Olaniyi Evans, 2016. "A Sectoral Analysis Of Fiscal And Monetary Actions In Nigeria," Journal of Developing Areas, Tennessee State University, College of Business, vol. 50(4), pages 211-229, October-D.
    20. Ramakrishnan Ramanathan, 2018. "Understanding Complexity: the Curvilinear Relationship Between Environmental Performance and Firm Performance," Journal of Business Ethics, Springer, vol. 149(2), pages 383-393, May.
    21. Fleissig, Adrian R. & Strauss, Jack, 1999. "Is OECD real per capita GDP trend or difference stationary? Evidence from panel unit root tests," Journal of Macroeconomics, Elsevier, vol. 21(4), pages 673-689.
    22. Sylvia Grewatsch & Ingo Kleindienst, 2017. "When Does It Pay to be Good? Moderators and Mediators in the Corporate Sustainability–Corporate Financial Performance Relationship: A Critical Review," Journal of Business Ethics, Springer, vol. 145(2), pages 383-416, October.
    23. Claessens, Stijn & Yurtoglu, B. Burcin, 2013. "Corporate governance in emerging markets: A survey," Emerging Markets Review, Elsevier, vol. 15(C), pages 1-33.
    24. Prajogo, Daniel & Toy, Jordan & Bhattacharya, Ananya & Oke, Adegoke & Cheng, T.C.E., 2018. "The relationships between information management, process management and operational performance: Internal and external contexts," International Journal of Production Economics, Elsevier, vol. 199(C), pages 95-103.
    25. repec:ebl:ecbull:v:3:y:2005:i:24:p:1-9 is not listed on IDEAS
    26. Hidenobu Okuda & Daiju Aiba, 2016. "Determinants of Operational Efficiency and Total Factor Productivity Change of Major Cambodian Financial Institutions: A Data Envelopment Analysis During 2006–13," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(6), pages 1455-1471, June.
    27. G. S. Maddala & Shaowen Wu, 1999. "A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(S1), pages 631-652, November.
    28. Ben Kwame Agyei-Mensah, 2018. "Impact of corporate governance attributes and financial reporting lag on corporate financial performance," African Journal of Economic and Management Studies, Emerald Group Publishing Limited, vol. 9(3), pages 349-366, July.
    29. Lee, Chien-Chiang & Lee, Jun-De & Lee, Chi-Chuan, 2010. "Stock prices and the efficient market hypothesis: Evidence from a panel stationary test with structural breaks," Japan and the World Economy, Elsevier, vol. 22(1), pages 49-58, January.
    30. Healy, Paul M. & Palepu, Krishna G. & Ruback, Richard S., 1992. "Does corporate performance improve after mergers?," Journal of Financial Economics, Elsevier, vol. 31(2), pages 135-175, April.
    31. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chang, Tsangyao & Chu, Hsiao-Ping & Ranjbar, Omid, 2014. "Are GDP fluctuations transitory or permanent in African countries? Sequential Panel Selection Method," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 380-399.
    2. Romero-Ávila, Diego, 2009. "Multiple Breaks, Terms of Trade Shocks and the Unit-Root Hypothesis for African Per Capita Real GDP," World Development, Elsevier, vol. 37(6), pages 1051-1068, June.
    3. Cem Ertur & Antonio Musolesi, 2017. "Weak and Strong Cross‐Sectional Dependence: A Panel Data Analysis of International Technology Diffusion," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 32(3), pages 477-503, April.
    4. Tuck Cheong Tang & Evan Lau, 2008. "An Empirical Investigation On The Sustainability Of Balancing Item Of Balance Of Payment Accounts For Oic Member Countries," Monash Economics Working Papers 31/08, Monash University, Department of Economics.
    5. Wang, Xiao-Qing & Su, Chi-Wei & Lobonţ, Oana-Ramona & Li, Hao & Nicoleta-Claudia, Moldovan, 2022. "Is China's carbon trading market efficient? Evidence from emissions trading scheme pilots," Energy, Elsevier, vol. 245(C).
    6. Durusu-Ciftci, Dilek & Ispir, M. Serdar & Kok, Dundar, 2019. "Do stock markets follow a random walk? New evidence for an old question," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 165-175.
    7. Khalid Ahmed & Bareerah Khan & Ilhan Ozturk, 2021. "Dynamics between disaggregates of governance and stock market performance in selected South Asia countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 802-813, January.
    8. doğru, bülent, 2013. "Are Output Fluctuations Transitory in the MENA Region?," MPRA Paper 49080, University Library of Munich, Germany.
    9. Andersson, Jens & Lazuka, Volha, 2019. "Long-term drivers of taxation in francophone West Africa 1893–2010," World Development, Elsevier, vol. 114(C), pages 294-313.
    10. Lee Chien-Chiang, 2011. "Does Insurance Matter for Growth: Empirical Evidence from OECD Countries," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-28, June.
    11. Lee, Kuei-Chiu, 2014. "Is per capita real GDP stationary in China? Sequential panel selection method," Economic Modelling, Elsevier, vol. 37(C), pages 507-517.
    12. Tsangyao Chang, 2011. "Is Per Capita Real GDP Stationary? An Empirical Note for 16 Transition Countries," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 10(1), pages 81-86, April.
    13. Cern Ertur & Antonio Musolesi, 2012. "Spatial autoregressive spillovers vs unobserved common factors models. A panel data analysis of international technology diffusion," INRA UMR CESAER Working Papers 2012/9, INRA UMR CESAER, Centre d'’Economie et Sociologie appliquées à l'’Agriculture et aux Espaces Ruraux.
    14. José Abraham López Machuca & Jorge Eduardo Mendoza Cota, 2017. "Salarios, desempleo y productividad laboral en la industria manufacturera mexicana. (Wage, Unemployment and Labor Productivity in the Mexican Manufacturing Industry)," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(2), pages 185-228, October.
    15. Lauren Stagnol, 2015. "Designing a corporate bond index on solvency criteria," EconomiX Working Papers 2015-39, University of Paris Nanterre, EconomiX.
    16. László KÓNYA, 2023. "Per Capita Income Convergence and Divergence of Selected OECD Countries to and from the US: A Reappraisal for the period 1900-2018," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 23(1), pages 33-56.
    17. Patrizia Ordine & Giuseppe Rose, 2008. "Local Banks Efficiency and Employment," LABOUR, CEIS, vol. 22(3), pages 469-493, September.
    18. Ronald MacDonald & Flávio Vieira, "undated". "A panel data investigation of real exchange rate misalignment and growth," Working Papers 2010_13, Business School - Economics, University of Glasgow.
    19. Cosmin Enache & Ciprian Pânzaru, 2012. "Romanian Migration Flows In European Countries: Does Social Security Matter?," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 2(14), pages 1-17.
    20. Cristina Brasili & Luciano Gutierrez, 2004. "Regional convergence across European Union," Development and Comp Systems 0402002, University Library of Munich, Germany.

    More about this item

    Keywords

    Financial Performance; Operational Efficiency; Profit after Tax; Rate of Return on Assets; Asset Turn Ratio; Portfolio Activity & Resilience;
    All these keywords.

    JEL classification:

    • D49 - Microeconomics - - Market Structure, Pricing, and Design - - - Other
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:118202. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.