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 South African non-finance firms from 2006 to 2022 and employing the Generalized Method of Moments technique, the study finds that, the prior profits of the firms positively influence their current profit levels. The study again finds that, interest rates negatively affect the profit levels of the firms. Further, the result of the study reveals that while inflation, exchange rates, corporate tax rates, work ethics, and unemployment negatively influence profitability through ROAs, these macroeconomic factors impact the profitability of the firms positively through ROE. Corruption was also found to positively influence profitability through ROA but negatively through ROE. Policymakers should be concerned with the effect of the changes macroeconomic variables have on firms’ performances in terms of value maximization.
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