External Factors Influencing Performance of Listed Firms on Dar es Salaam Stock Exchange.

Abstract

The prosperity of firm performance depends on external surrounding environment. However, in Tanzania, little is known about external factors influencing firm performance. The aim of this study was to determine the external factors influencing the performance of listed firms on Dar es Salaam Stock Exchange. The Study employed ex post facto research design as a guide. The sample size for this study consisted of 14 listed firms from 2011 to 2018. The study employed panel data, where secondary data for dependent variables were obtained from firms audited annual reports while independent variable data were obtained from National Bureau of Statistics, and Bank of Tanzania. The dependent variable (firm performance) was measured by Return on asset (ROA), while independent variables measured where; Exchange Rate, Gross domestic product, Lending Interest Rate, Inflation Rate, and Corporate tax rate with firm size and firm age as control variables. The study used two models (Model 1 and 2) during analysis. Model 1, the study included all variables, while model 2 dropped control variables (firm size and age) during analysis. Generalized Least Square method was used for analysis and testing the hypotheses. The findings indicated that inflation rate was positively significant to ROA at p < 0.05 and p < 0.1 in Model 1 and 2 respectively, while corporate tax rate was positively significant at p < 0.01 for Model 1 and 2. Exchange rate was negatively significant at p < 0.01 for model 1 and 2, while firm age had a positive significant influence on ROA at p < 0.01 in model 1. Such results have implications on firms since their survival, growth and performance highly depend on their interactions with the surrounding environment. The study recommends regulatory bodies and Bank of Tanzania to formulate policy frameworks to regulate and control effects of external factors in order to improve firm performance.