Exchange Rate Dynamics, Investment Decisions and Market Valuation of Quoted Mid-Market Firms in Nigeria
Abstract
This study examined the effect of exchange-rate dynamics and investment decisions on the market value of quoted mid-market firms in Nigeria. An ex post facto research design was adopted using a quantitative panel-data approach. Secondary data were obtained from the audited annual financial statements of the sampled quoted firms. Exchange-rate dynamics were proxied by official exchange rate and parallel exchange rate , while investment decisions were measured using portfolio investment (PI) and real investment (RI). Market value (MV) was measured using stock price. The study estimated Pooled Ordinary Least Squares , Fixed Effects (FE) and Random Effects (RE) models, while the Hausman specification test was employed to determine the most appropriate model. The Hausman test produced a chi- square statistic of 30.394 with a probability value of 0.0000, indicating that the Fixed Effects model was appropriate. The findings revealed that official exchange rate had a negative but statistically non-significant effect on market value (β = −0.000506; p = 0.9550), whereas parallel exchange rate had a negative and statistically significant effect (β = −0.011866; p = 0.0417). Portfolio investment exerted a positive and significant effect on market value (β = 0.131480; p = 0.0227), while real investment also had a positive and significant effect (β = 0.033619; p = 0.0174). The Fixed Effects model recorded an R2 of 0.5542, indicating that the explanatory variables jointly accounted for approximately 55.42% of the variation in market value, while the overall model was statistically significant (F = 6.312; p < 0.001). The study concludes that parallel-market exchange-rate pressures undermine market valuation, whereas portfolio and real investment enhance the market value of quoted mid-market firms in Nigeria. The study recommends that mid-market quoted firms strengthen foreign-exchange risk- management practices, prioritise productive investment and improve investor relations to attract portfolio investment. It also recommends that monetary and capital-market authorities promote greater exchange-rate stability, improve foreign-exchange market efficiency and create a more predictable investment environment for mid-market quoted firms in Nigeria.
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