The Effect of Macroeconomic Factors on the Profitability of Non-Finance Firms in South Africa
Keywords:
Profitability; Non-finance firms; South Africa; Macroeconomics Variables; Return on Assets; Return on EquityAbstract
This study examines the effect of macroeconomic factors on the profitability of non-finance
firms in South Africa. Using an annual dataset of listed non-finance firms from 2006 to 2022, and
employing the Generalized Method of Moments technique results show that, prior profits of the firms
positively influence their current profit levels. The study finds that, interest rates negatively affect the
profit levels of the firms. Again, the result of the study reveals that while inflation, exchange rates,
corporate tax rates, work ethics, and unemployment negatively influence profitability through Return
on Assets (ROAs), they impact the profitability of the firms positively through Return on Equity (ROE).
Corruption was also found to positively influence profitability through ROA but negatively through
ROE. Policymakers are advised to monitor the effects of macroeconomic variables and assess the net
effect of the volatility of these variables on the behaviour of non-financial firms in their respective
economies to address the various dynamics posed by the macroeconomic factors to firms.
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