Economic Instability and Corporate Failure of Pharmaceutical Firms in Nigeria

Abstract

The study examined the effect of economic instability on corporate failure of pharmaceutical firms in Nigeria. The study adopted an ex-post facto research design, covering the period between 2013 and 2022. Secondary data were extracted from the CBN Statistical Bulletin and financial report and accounts of the sampled firms in Nigeria. Multiple regression technique was used for test of hypotheses. The findings revealed a nonsignificant negative effect of inflation rate and exchange rate on Altman zeta score of pharmaceutical firms in Nigeria. However, crude oil price shocks have a non-significant positive effect on Altman zeta score of pharmaceutical firms in Nigeria. The findings imply that economic instability is not the main determinant of corporate failure in Nigeria pharmaceutical sector. The study, therefore, recommended that pharmaceutical firms, should monitor inflation trends, especially concerning raw material costs, energy, and operational expenses. Proactive cost management strategies and sensitivity analyses to assess the financial impact of varying inflation scenarios are encouraged. Additionally, firms with foreign exchange exposure should remain vigilant about currency risk, considering hedging strategies, supplier diversification, and local sourcing. It is crucial to assess foreign exchange risk management practices thoroughly. Despite non-significant results, firms should stay attentive to the potential impact of oil price shocks, particularly concerning energy costs and economic stability. Developing a risk management strategy that considers potential oil price volatility and regularly monitoring global energy markets is advisable to enhance resilience.

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