Abstract
This study examines the effect of exchange rate volatility on the financial performance of listed manufacturing firms in Nigeria over the period 2015–2024. Nigeria's manufacturing sector is highly exposed to exchange rate risk due to its dependence on imported raw materials and machinery. The 2023 exchange rate unification policy, which led to a sharp depreciation of the naira, further heightened this vulnerability. An ex-post facto research design was adopted using secondary panel data from 45 listed manufacturing firms, comprising 450 firm-year observations obtained from audited financial statements, the Central Bank of Nigeria, and the Nigerian Exchange Group. Exchange rate volatility was estimated using the GARCH (1,1) model, while financial performance was measured by Return on Assets (ROA) and Return on Equity (ROE). Firm size, leverage, and liquidity were included as control variables. Panel unit root, cointegration, and Hausman tests supported the use of the Fixed Effects model, while a Panel ARDL/Error Correction Model was employed to distinguish between short-run and long-run effects. The findings reveal that exchange rate volatility has a significant negative effect on both ROA (β = –18.23, p < 0.01) and ROE (β = –25.68, p < 0.01), with stronger long-run effects than short-run adjustments. Firm size and liquidity mitigate the adverse impact, whereas leverage intensifies it. The study concludes that exchange rate stability is essential for improving manufacturing firms' financial performance and recommends stronger foreign exchange risk management practices alongside policies that promote a stable and predictable exchange rate environment.
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