Effect of Currency Exchange, Inflation and Government Policies on Financial Reporting of Multi-National Companies in Nigeria

Abstract

The study sought to examine the effect of currency exchange, inflation and government policies on financial reporting of multinational companies. There are a lot of factors that affect the financial report of multinational companies but the study focuses on currency exchange, inflation and government policies on multinational companies. The literature development was guided by purchasing power parity (PPP) theory, interest rate parity (IPR) theory, and the balance of payments theory. The descriptive research design was used in this study. The Nigeria Bureau for statistics and the Central Bank of Nigeria were used as sources of information in other to establish the effect of currency exchange, inflation and government policies on the financial reporting of multinational companies. The study used inflation rates in percentage, interest rates in percentage and average annual exchange rates from 2012-2017. Multiple linear regression was used to analyse the relationship between the variables and a response variable was used by fitting a linear equation to the observed data. The study also used the explanatory power of the model R², F test ANOVA and also test of Multicullinearity. The study found that the co-efficient of multiple determinations R-square value was 0.81; these meant that the chosen variables specifically inflation rate and currency rates in Nigeria during the year 2012-2017 affect exchange rate by 87.1% and therefore 12.9% effects the exchange rate was associated with other factors. The regression results also indicate that the relationship between inflation, interest rate, and exchange rates is very significant at 0.05 level with a p-value of 0.016. The study finally concluded that increase in interest rate is necessary to stabilize the exchange rate depreciation and to curb the inflationary pressure and thereby helps to avoid much consequence on multinational coporations. The study therefore recommends that multinational coporations should come up with means to evaluate exchange rate volitalty as a result of government policies and that given specific context of developing countries like Nigeria, significant shocks from the exchange rate to inflation and the limitations related to government policies controlling exchange rate volatility is vital to financial reporting.