Title: Fuel Subsidy Removal And Corporate Financial Performance: Evidence From Listed Manufacturing Firms In Nigeria
Authors: AdejoOdekinaOkeme, DR Haruna Ruth Ayanlewa (Mrs), Elias Samuel Unekwu
Volume: 10
Issue: 8
Pages: 266-279
Publication Date: 2026/08/28
Abstract:
The decision by the Federal Government of Nigeria to remove the Premium Motor Spirit (PMS) subsidy in May 2023 was one of the most significant economic policy reforms in Nigeria with far-reaching implications for business operations especially in the manufacturing sector. This study investigated the effect of the removal of fuel subsidy on the financial performance of listed manufacturing firms in Nigeria. The study adopted Return on Investment (ROI) and Return on Equity (ROE) as measures of financial performance. The study adopted an ex post facto research design and obtained panel data from audited annual reports of 40 manufacturing firms listed on the Nigerian Exchange Group (NGX) for the period 2020-2025. Descriptive statistics, correlation analysis, Variance Inflation Factor (VIF), pooled ordinary least squares, fixed effects and random effects estimations were employed in the study. The fixed effects model was the preferred estimator as indicated by the Hausman specification test. Driscoll-Kraay robust standard errors were used to account for heteroskedasticity, serial correlation and cross-sectional dependence. The empirical results indicated that the removal of fuel subsidy affected the Return on Investment and Return on Equity negatively and statistically significant which means that the increase in fuel prices after the policy implementation had affected the profitability of the firms negatively through the increase in production, transportation and energy costs. The study also found that firm size has a positive effect on financial performance, while leverage has a significant negative effect. The study finds that removal of fuel subsidy can improve fiscal sustainability but harm the short-term financial performance of manufacturing firms. The study suggests targeted industrial support policies, upgrading energy infrastructure, increasing investments in alternative energy sources and financial prudence for enhancing the resilience and competitiveness of the manufacturing sector in the post-subsidy era