Professional Documents
Culture Documents
Mark, John
Department of Management
Rivers State University of Science and Technology
Port Harcourt, Nigeria
&
Nwaiwu, Johnson N.
Department of Accounting
University of Port Harcourt
Rivers State, Nigeria
Abstract
This study investigated the impact of political environment on business performance
of multinational companies in Nigeria. To achieve this purpose, a review of extant
literature was made which was supported by hypothesis. The population of this study
consists of quoted manufacturing companies in Nigeria. About twenty-seven (27) of
such companies were identified and the necessary data were sourced from the
Nigerian Stock Exchange Fact Book of 2012 and the World Development Indicators
of World Bank Group. Political environment was measured as the degree of political
stability and absence of violence while business performance was measured by the
profitability of the companies for the period 1999-2013. Our findings showed that
political environment has a negative significant impact on business performance of
multinational companies in Nigeria. Based on the above, we suggest that the Nigerian
government should avoid frequent changes in government policies and programmes,
and ensure stability of democratic institutions and political integration. These are
necessary to make the political terrain stable and out of violence for business growth
and development.
Key words: Political environment, business performance, multinational companies.
Introduction
Business performance is the effort expended by a business firm in achieving
its objectives of customer satisfaction, employee satisfaction, societal satisfaction,
and ultimately profitability. Several studies such as Richard, Devinney, George and
Johnson (2009), and Ibeto (2011), have shown that the effort expended by
multinational business managers in achieving their goal in Nigeria has not been very
successful. Richards et al (2009), maintain that the successful performance of
multinational companies depends to a great extent on the political environment of the
host country. According to these scholars, political environment refers to forces and
issues emanating from the political decisions of government, which are capable of
altering the expected outcome and value of a given economic action, by changing the
probability of achieving business objectives. Ibeto (2011) described the political
environment as factors arising from changes in government policies and programmes,
which influence the ability of economic entities in achieving their goal.
The multinational business managers in Nigeria operates in a dynamic
political environment characterized by risks of multiple taxation, currency
devaluation, inflation, repatriation, expropriation, confiscation, campaigns against
foreign goods, mandatory labour benefit legislation, kidnapping, terrorism, and civil
wars (Griffen, 2005). Actions taken by government such as regulatory, legal
framework, and political changes may decrease business income and acts as barriers
to foreign investment.
Although it has been established that the political environment has a link with
business performance, there seems to be inadequate literature and empirical evidence
in Nigeria that relate the political environment to the performance of multinational
companies. An attempt to investigate this relationship and expand the frontier of
knowledge in this area of study led to the hypothesis that political environment has no
significant relationship with business performance of multinational companies in
Nigeria.
Literature Review
Not only that the political environment poses direct risks to firms, but politics
is also component of other external risks. Ibeto (2011) posit that regulatory changes
have the potential to promote or inhibit market competition, social risks often have
political bases and responses, and political mismanagement can turn natural or
human-made events into catastrophes. Moreover, the political environment is often
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IMPACT OF POLITICAL ENVIRONMENT ON BUSINESS PERFORMANCE OF MULTINATIONAL COMPANIES IN NIGERIA 3
AFRREV, VOL. 9(3), S/NO 38, JULY, 2015
healthcare. Political risks like arms conflicts, insurrection may affect all firms in the
country equally. For that reason they are called macro political risks. Unlike,
nationalization, strikes, expropriation may affect only a handful and specific firm, and
they are named micro political risks (Griffen, 2005; Andoh, 2007).
Some negative effects of the political environment on multinational firms are
summarized in the following table.
Table 1.Negative effects of the political environment on multinational firms
Lower productivity
Lost sales
Disruption of production
Lower productivity
P-value 0.028
t-statistics 2.001