The Relationship Between the Financial Performance of Companies Listed on the Zimbabwe Stock Exchange and Economic Growth

Abstract

This research analyzes the financial performance of companies listed on the Zimbabwe Stock Exchange. The factors affecting the financial performance of the listed companies were looked at in detail. Moreover, the relationship between the financial performance of listed companies and economic growth was established. Financial performance was measured using ROA and ROE. Data from the financial statements of the selected companies was used in this research. Questionnaires were administered to analyze the financial performance of the listed companies and to explore the major factors that affect the financial performance of these companies. Interviews were also carried out as follow ups to gather the complete information. The research also sought to discover the relationship between financial performance of the listed companies and economic growth as measured by GDP. The research focused on three listed companies in the industrial sector listed on the ZSE. The data used in the research was mainly obtained from the ZSE database and the respective firms’ websites. The study population was 103, composed of 66 Zimbabwean Chartered Financial analysts and 37 registered stockbrokers. Non-probalistic sampling was used. A sample size of sixty participants was drawn from the population using the survey sample size calculator. Statistics on the rates of economic growth was obtained from Zimstats. The analysis of the quantitative data was done using descriptive and inferential statistics utilizing the SPSS. Descriptive statistics that were drawn included percentages, means, standard deviations, minimums and maximums. The results were presented using tables and analyzed using SPSS and charts. The analysis revealed that there is a strong positive relationship between financial performance and economic growth as evidenced by the correlation coefficient of 1 between financial performance (as measured by ROA and ROE) and GDP growth. The major factors affecting the financial performance of the listed firms were also obtained from survey responses and these included firm size, firm age, leverage, ownership structure and liquidity. The study depended on the published financial data of the listed companies as well as empirical data collected. The study is of crucial importance to determine the relationship between the financial performance of listed companies and economic growth ensuring that listed companies operate with a common goal, which is to drive economic growth. The study findings are fundamental in assisting investors to identify and make informed decisions based on the performance of listed companies in Zimbabwe regarding investments. This research contributes to the firm financial performance knowledge in several ways. First, it provides evidence of the relationship between economic growth and firm financial performance. It also explores the factors that affect the financial performance of listed companies in Zimbabwe. It is important for the policy makers to know the factors that affect the financial performance of listed companies and put measures that enable listed companies to perform at the maximum of their abilities and thereby contribute to the economic growth of the country.