Investment Spikes and Firm Profitability
Keywords:
Investment spike, firm profitability, Consumer Goods Sector, NIgerian Exchange Group
Abstract
Investment has become a window for enhancing firm profitability and other corporate objectives. This study aimed to investigate the effect of investment spike on the profitability of consumer goods firms quoted on the Nigerian Exchange Group between 2011 to 2021. The incidence of investment spike and size of investment spike were the independent variables controlled by the firm size while return on asset was the measure for firm profitability. Data were collected from the annual reports of the selected consumer goods firms. The study employed the pane regressed based on Fixed and Random Effect for data analysis. The results showed that all the variables of investment spike including incidence of spike and size of spike had positive and significant effects on the return on assets of consumer goods firms. The coefficient of determination and f-statistics revealed that revealed that investment spikes explained about 80% of variations in the firm profitability. The study posited that investment spike is a determinant of firm profitability among the consumer goods sector in Nigeria.
References
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2. Albulescu, C. T., Drăghici, A., & Tăucean, I. M. (2018). Firms’ financial performance and investment: a panel data analysis applied to the wine industry of CEE countries. Procedia - Social and Behavioural Sciences, 238, 714 – 719.
3. Balarabe, B. (2020). Capital budgeting decision and its implication to firm’s growth in Nigeria. International Journal of Advanced Academic Research, 6(4), 100 – 106.
4. Beld, B. (2014). The effect of R&D investment on firm performance. 4th IBA Bachelor Thesis Conference, November 6th 2014. Enschede Netherlands.
5. Chen, S., Yao, T., Yu, T., Zhang, T. (2008). Asset growth and stock returns: Evidence from the Pacific-basin markets. Retrieved from International Financial Management Association International.
6. Cooley, T. F., Greenwood, J. & Yorukoglu, M. (1997). The replacement problem. Journal of Monetary Economics 40(3), 457 – 499.
7. Cooper, R., Haltiwanger, J. & Power, L. (1999). Machine replacement and the business cycle: lumps and bumps. The American Economic Review 89(4), 21–946.
8. Dickson, D.A. (2010). The recent trends and patterns in Nigeria’s industrial development. Council for the Development of Social Science Research in Africa.
9. Farooq, S., Ahmed, S., & Saleem, K. (2015). Over investment, growth opportunities and firm performance: evidence from Singapore stock market. Corporate Ownership & Control, 12(3), 454 – 467.
10. Gourio, F. & Kashyap, A. K. (2007). Investment spikes: new facts and a general equilibrium exploration. National Bureau of Economic Research. NBER Working Paper No. 13157.
11. Gradzewicz, M. (2018). What happens when firms invest? Investment events and firm performance. Economic Research Department, Warsaw. Narodowy Bank Polski, NBP Working Paper No. 291.
12. Grazzi, M., Jacoby, N., & Treibich, T. (2013). Dynamics of investment and firm performance: Comparative evidences from manufacturing industries. Groupe de REcherche en Droit, Economie, Gestion. GREDEG Working Paper No. 2013-09.
13. Harjito, A., & Martono. (2013). Manajemen Keuangan (Editi Ke-2). Yogyakarta: Ekonisia, Kampus Fakultas Ekonomi, Universitas Islam Indonesia.
14. Heshmati, A., & Lööf, H. (2008). Investment and performance of firms: Correlation or causality? Corporate Ownership & Control, 6 (2), 268 – 282.
15. Mansaray- Pearce, S. (2019). The impact of capital budget decision on financial performance of commercial banks in Sierra Leone. International Journal of Research in Business Studies and Management, 6(7), 31-37.
16. Muli, M. A. (2016). Effect of investment decision on financial performance of savings and credit cooperatives in Kitui central sub-county, Kenya. A Research Project Report Submitted To The Department Of Business And Entrepreneurship In The School Of Business And Economics In Fulfilment Of The Requirement For The Award Of The Degree Of Master Of Business Administration Of South Eastern Kenya University.
17. Mweresa, S. O. & Muturi, W. (2018). Effects of investment decisions on the financial performance of public sugar firms in western Kenya. International Journal of Social Sciences and Information Technology, IV (V), 197 – 210.
18. Otekunrin, A.O., Nwanji, T. I., Ajayi, S. A., Awonusi, F. D., Falaye, A. J. & Eluyela, D. F. (2018). Investment decision and profitability in brewery industry: A case study of Nigeria brewery Plc. Journal of Business and Organizational Development, 10(2), 1 – 37.
19. Power, L. (1998). The missing link: Technology, investment, and productivity. The Review of Economics and Statistics 80(2), 300–313.
20. Proshare, (2016). Consumer Goods Sector – NESTLE, CHAMPION and NB Record Over 1,000 PE Ratio. Proshare Markets. Tuesday, December 27, 2016. Retrieved 27th March, 2022 from https://www.proshareng.com/news/CAPITAL%20 MARKET%20REPORT%20/Consumer-Goods-Sector-%E2%80%93-NESTLE--CHAMPION-and-NB-Record-Over-1-000-PE-Ratio-/33329#.
21. Saif, U. l., Islam, M., Meo, M. S., & Usman, M. (2020). The relationship between corporate investment decision and firm performance: Moderating role of cash flows. Journal of Public Affairs, 1 – 10. https://doi.org/10.1002/pa.2445.
22. Santoso, H. (2019). The impact of investment decision and funding on financial performance and firm value. Jurnal Ekonomi Bisnis dan Kewirausahaan, 8(2), 103-112.
23. Segal, T. (2020). Physical capital. Updated December 16, 2020. Reviewed by Thomas Brock.https://www.investopedia.com/terms/p/physical-capital.asp.
24. Taipi, E. & Ballkoci, A. (2017). Capital expenditure and firm performance: Evidence from Albanian construction sector. European Scientific Journal, 13(28), 231 – 238.
25. Xu, J., Sim, J-W, & Jin, Z. (2016). Research on the impact of R&D investment on firm performance and enterprise value based on multiple linear regression model and data mining. International Journal of Database Theory and Application, 9(11), 305-316.
Published
2023-12-08
How to Cite
Ogbonnia, A. A., Maryann, I. N., & Ikenna, E. (2023). Investment Spikes and Firm Profitability. International Journal on Economics, Finance and Sustainable Development, 5(12), 41-51. https://doi.org/10.31149/ijefsd.v5i12.5022
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