Foreign Exchange Rate Translation and Corporate Performance of Multinational Enterprises in Nigeria

Abstract: Foreign currency translation is essential for financial reporting of multinational enterprises operations, particularly those operating in different global markets as companies engage in cross border transactions; maintain subsidiaries and associates in multiple countries. These firms encounter various foreign exchange risks that can significantly affect their financial statements. The choice of foreign currency translation method by multinational enterprises has profound effect for reporting financial outcomes. This study seeks to examine the effect of foreign exchange risks that can significantly affect their financial statements. The choice of foreign currency translation method by multinational enterprises impact financial outcome. This study seeks to examine the effect of foreign exchange rate translations on corporate performance of multinational enterprises in Nigeria. The study used Augmented Dickey-fuller based on panel data framework for the period 2014 – 2023 on multinational enterprises in Nigeria. The use of ADF was to determine the stationarity or non-stationarity, while Granger causality test was conducted to show the directional causality. From Hausman test, fixed and random effects were adopted. The study shows that causality test outcome imply that the variables are independent of each other. It further suggest that a change in one variable does not Granger cause a change in another variable. The outcome is, neither unidirectional nor bidirectional causality. But, in terms of relationships, foreign exchange rate translation had positive significant effect on return on assets and negative effect on return on equity. The implication of the positive effect of foreign exchange rate translation is that naira is depreciating against other currencies, increasing the value of foreign currency dominated assets. We conclude that exchange rate fluctuation is a significant predicator of return on assets, but not return on equity over the research period. The study recommends that management should adopt proactive exchange rate risk management policies such as hedging strategies to reduce the
financial effects of exchange rate changes. The study further recommended that given exchange rate movements, financial managers of the selected firms should incorporate exchange rate monitoring into their operational planning.