FINANCIAL DETERMINANTS ON PERFORMANCE OF SIX MANUFACTURING FIRMS LISTED AT DAR ES SALAAM STOCK OF EXCHANGE
Purpose of the Study: The study aimed to examine the financial determinants affecting the performance of six manufacturing firms listed on the Dar es Salaam Stock Exchange (DSE) in Tanzania between 2010 and 2023. Specifically, it investigated the impact of internal factors (liquidity, efficiency, leverage), institutional profile (firm size and total assets), and external macroeconomic factors (interest rates, inflation, and exchange rates) on firm performance, measured by Return on Assets (ROA) and Return on Equity (ROE).
Methodology: This study employed a longitudinal research design using secondary data from audited annual reports of the six firms. Descriptive statistics, correlation analysis, and diagnostic tests were conducted, followed by regression analysis using the Auto Regressive Distributed Lag (ARDL) model to determine relationships between independent variables and firm performance. Stationarity of the data was verified through the Augmented Dickey-Fuller (ADF) test.
Findings: Results indicate that internal factors significantly influence firm performance. Liquidity was positively correlated with ROA (0.842) and ROE (0.713), with regression showing a 1% increase in liquidity improving performance by 2.62% (p = 0.0084). Efficiency had the strongest impact, where a 1% increase improved performance by 44.07% (p = 0.0022). Leverage negatively affected performance, reducing profitability by 4.81% per 1% increase (p = 0.0245). Firm size positively affected performance by 2.67% (p = 0.0001), while total assets had a negative but insignificant effect (β = –1.4208, p = 0.4292). External macroeconomic factors significantly enhanced performance, with favorable conditions improving firm profitability by 83.34% (p = 0.0015). Overall, the ARDL model explained 74.5% of variations in firm performance (R² = 0.745).
Originality: This study uniquely focuses on publicly listed Tanzanian manufacturing firms over a 14-year period, integrating internal, institutional, and external determinants in a longitudinal framework, providing updated empirical evidence.
Practical Implications: Managers should prioritize liquidity and operational efficiency while managing debt prudently. Policymakers can support sector performance through stable macroeconomic policies and regulatory frameworks that encourage efficiency.
Social Implications: Enhanced performance of manufacturing firms can contribute to industrial growth, employment creation, and economic development, improving social stability and livelihoods in Tanzania.
Keywords: Financial determinants, firm performance, liquidity, efficiency, leverage, firm size, total assets, external factors, Dar es Salaam Stock Exchange, Tanzania.
