The Effect of Inflation on Reported Profit for Decision-Making: In the Case of Banks in Ethiopia
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Date
2021-03
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A.A.U
Abstract
This study analyzes the effect of inflation rate on reported profit, investment, and lending rate for decision making in Ethiopian banks between the period of 2015 – 2019. To address the research objectives, 10 banks were selected due to the availability of full data for the selected period. A total of 50 observations were collected from the audited annual financial report of each bank and macroeconomic and social indicators published by the National Bank of Ethiopia (NBE). The study adopts a purposive sampling method to collect data and a survey research method to analyze documents. In light of prior literature, key explanatory variables were identified to disclose the effect of inflation on reported profit. These variables are lending rate, profit, and investment. The variables were analyzed using STATA econometrics software. The assumptions needed to be fulfilled for OLS were tested and the result proves that the data was not found heteroscedastic, free of autocorrelation, and normally distributed. The findings of the study show that the lending rate has a statistically significant and positive relationship with the inflation rate. However, the other variables profit and investment have a positive and statistically insignificant relationship with inflation. The study recommended that the management and policymakers of Ethiopian banks should come up with better strategies of countering the inflation effect to allow sustained profits and attract customers and prevent them from minimizing and terminating borrowing
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Effect of Inflation on Reported Profit for Decision-Making