Nigerian Journal of Banking and Financial Issues (NJBFI)

COST REDUCTION AND FINANCIAL PERFORMANCE OF INDUSTRIAL GOODS FIRMS IN NIGERIA

Abstract

The research investigated the relationship between cost reduction and the financial performance of industrial goods companies in Nigeria. In particular, it focused on the impact of labor costs, office expenses, and material costs on the return on investments for these firms. The study utilized secondary data, which was gathered from the annual financial reports of ten (10) selected firms from 2015 to 2024. The data were analyzed through descriptive statistics, correlation analysis, and panel regression techniques, including pooled OLS, random effect estimation, and fixed effect estimation, along with the Hausman test and post-estimation tests for the models used in the research. The results indicated that labor costs have an insignificant negative impact on the return on investments of the firms studied, whereas office expenses and material costs have an insignificant positive impact on returns on investments. Consequently, the study concluded that cost reduction can have both positive and negative effects on the financial performance of industrial goods firms in Nigeria, particularly when assessed in terms of return on investments. The research recommended that these firms should maintain optimal control over labor costs, as any efforts to use it as a positive change agent for a specific financial performance metric could adversely affect another metric. Therefore, the reduction of labor costs by industrial goods firms should be approached with consideration of the overall performance objectives of the firms at any given time, ensuring that provisions are made to potentially trigger one financial performance measure without compromising another.