Determinants of Financial Performance of Automotive Importing Firms in Ethiopia
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Date
2023-06
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A.A.U
Abstract
This study was conducted to examine of Determinates of financial performance of automotive importers in Ethiopia. Based on this aim, the study has analyzed foreign exchange volatility, performance of the firms, and examine effect of the exchange rate volatility on sales and profitability of the firms. The study has followed descriptive and explanatory research designs and used quantitative research approach. This study used 20 firms that import automotive and they operate in Addis Ababa. The study has used secondary data collected from the firms and NBE. The data was analyzed by using descriptive statistics and regression. The exchange rate volatility was estimated based on ARCH methods and existence of ARCH effect was examined by using ARCH LM test. For the volatility estimation, the study has included 120 months; from 2013 to 2022 business calendar. In addition, the effect of estimated exchange rate volatility on performance of the firms was estimated by using panel models; fixed effect and random effect models. In addition, exchange rate volatility, the estimation model included Size, liquidity, leverage, market power and Economic Growth. This study has identified that exchange rate in Ethiopia is frequently and unpredictably changes from time to time. Moreover, it was identified that the exchange rate volatility has no ARCH effect and this indicated that exchange rate volatility in Ethiopia is not predictable based on its volatility in previous period. In addition, size, leverage and liquidity have positive and significant effect on both profitability and sales performance of the firms. In contrast, leverage has negative and significant effect on performance of the firms. Moreover, economic growth has positive and significant effect on performance of the firms.