Debt Financing and Performance; a behavioural view of listed manufacturing firms in Nigeria

  • Clifford Ajemije Tuoyo
  • Adebolanle Adekemisola Debo-Ajagunna
  • Alani Olusegun Efuntade
  • Rotimi OLADELE
Keywords: Debt financing, Performance, finance Mismatch, Listed Firms,

Abstract

The study investigated the impact of debt financing on performance of listed manufacturing firms. Performance of firms was proxy by debt financing while the dependent variable was proxy by ROA (return on assets). Using quantitative research design; data for the study were sourced from the annual report of five quoted manufacturing firms covering six years from 2016 to 2021. Panel least square regression and Analysis of Variance (ANOVA) were adopted to estimate the data and test the hypotheses developed for the study to validate the performance of the variables, equally to depict the influence of explanatory variables. Findings revealed that debt financing had a positive and significant effect on performance of firms in non-financial sector in Nigeria. The study thereby recommended that the management of listed manufacturing firms in Nigeria should take the issue on capital structure with great concern, in particular special attention should be given to short term debt for meeting working capital deficit as well as long term loans for capital projects to avert finance mismatch. Doing so would improve profit margin and achieve a better performance and resultant wealth maximisation.

References

A. Afolabi, J. Olabisi, S. Kajola and T. Asaolu (2019) Does Lavage Affect Financial Nigeria Firm; Journal of Economic and Management 2(4); 23-38
Abdul J, and Badmus O (2017). Effect of leverage on firm performance in Nigeria: A case of listed chemicals and paints firms in Nigeria. Global Journal of Management Business Research: 17(2): 2249-4588.
Adegboye, A., &Iweriebor, S. (2018). Does access to finance enhance SME innovation and productivity in Nigeria? Evidence from World Bank Enterprise Survey. African Development Review, 30(4), 449-461.
Adeyemi, S. B., & Oboh, C. S. (2011). Perceived relationship between Corporate Capital Structure and Firm Value in Nigeria. International Journal of Business and Social Science, 2, (9) 131-143.
Ahmed, G. (2017). The Relationship between financial performance and capital structure in Malaysia. Journal of Applied Sciences, Engineering and Technology, 5(14), 3843-3850
Ajayi, E. O. & Araoye, E. F. (2017). The Effect of Capital Structure on the Financial Performance of Manufacturing Firms in Nigeria (2008-2014). Journal of Accounting and Financial Management, 3(3), 37-48.
Akaji Orji, Nwadialor E. O. Ph.D and Agubata, N. Ph.D (2021) Effect of Debt Financing on Firms Performance in Nigeria; Journal of Accounting and Financial Management; 2504-8856.
Akintola, A.F. & Cole, A.A. (2020) Impact of Financial Leverage, Size Assets Structure on Firm.
Almajali, A. Y., Alamro, S. A., Al-Soub, Y. Z. (2012). Factors affecting the financial performance of Jordanian insurance companies listed at Ammanstock exchange. Journal of Management Research, 4(2), 266. Aniefor Sunday Jones & Onatuyeh Aruobogha Edwin (2019); the Effect of Debt Financing on the Corporate Performance; International Journal of Academic Accounting, Finance and Management Research (IJAAFMR) 3 (5):19-25
ANIFOWOSE, Abolaji Daniel, SOYEBO Yusuf Aina, TANIMOJO, Temitope Aduragbemi (2020); Effect of Financial Leverage on Firms Performance: Case of Listed Pharmaceutical Firms in Nigeria; International Journal of Academic Accounting, Finance & Management Research (IJAAFMR) 4 (04) Birru, M. W. (2016). The impact of capital structure on financial performance of commercial banks in Ethiopia. Global Journal of Management and Business Research: C Finance, 16(8)
Chadha, S., & Sharma, A.K. (2015). Capital structure and firm performance: Empirical evidence from India. Vision, 19(4), 295-302.
Champion D (1999). Finance: the joy of leverage’, Harvard Business Review, 77, 4, 19- 22
Chandy, S. (2018).“Management Accounting.”RajendraRavindra printers PVT Limited.S.chandy and company limited. New Delhi-India. Concept, Analysis And Capital Derega Regasa, David Fielding and Helen Robert (2019) The source of financing and firm growth: Evidence from Ethiopia. Journal of African Economist 29(3)
Djuaeriah, N., & Joy Winarta, B. (2021). The effect of capital structure on firms’ profitability Domnick, C. H. (2018). Influence of capital structure on firm´s financial performance: An inter industry investigation of German listed firms. 11th IBA Bachelor Thesis Conference.Enschede, The Netherlands.
Donaldson, G., 1961. Corporate debt capacity: a study of corporate debt policy and the determination of corporate debt capacity. Graduate School of Business Administration, Harvard University, Boston.
Eleje, E. O., Okechukwu, A. E., &Chikanele, B. 0. (2020). Debt finance and corporate enterprises in Kumasi metropolis: evidence on the impact of financial management practices. European Journal of Business and Management, (10)21 enterprises, Journal of Financial Risk Management, 10, 241-259.
Eze, G.P., &Uzochukwu, A. (2020). The Impact of Debt on Capital Structure: Empirical financialal performance of listed consumer goods companies on the nigeria stock exchange. International Journal of Social Sciences and Humanities Reviews, 1 (1), 251-258
Giang, M.HL.,Trung, B-H., Yoshida, Y, Xuan, T.D. &Que, M.T (2019). The causal effect of growth and firm performance: evidence from Jordan. International Journal of Innovation, Creativity and Change, 10(12)
Idode, P.E, Adeleke, T.M., Ogunlowore, A.J, &Ashogbon, O.S. (2019). Influence of Capital Structure on Profitability Empirical Evidence from Listed Nigerian Banks, 16 (11), 22-28.
Ifeayi Nwanna and Ivie Glory (2017) conducted a study on the effect of financial leverage in Nigeria. Investments. Lagos: Brierly Jones
Kayhan, R., & Timan, J. (2017). Strategic Assets, Capital Structure and Firm Performance in Pakistan, Journal of Financial and Strategic Decisions, 10 (3), 23–36.
Kayhan, R., &Timan, J. (2017). Strategic Assets, Capital Structure and Firm Performance in Pakistan, Journal of Financial and Strategic Decisions, 10 (3), 23–36.
Matar, A., & Eneizan, B.M. (2018). Determinants of Financial Performance in the Industrial Firms: Evidence from Jordan, Asian Journal of Agricultural Extension, Economics & Sociology, 22(1), 1-10.
Modigliani, F. & Miller, M. (1958).The Cost of Capital, Corporate Finance and the Theory of Investment. American Economic Review, 48, 261-97.
Modigliani, F. & Miller, M. (1958).The Cost of Capital, Corporate Finance and the Theory of Investment.American Economic Review, 48, 261-97.
Muchiri, S. (2016). Capital Structure and Financing of SMEs: Australian Evidence”. Journal of Accounting and Finance, 43, 123 – 47.
Myers SC. Majulf NS (1984). Corporate financing and investment decisions when firms have information that investors do not have. J Finance 12: 187-221.
Nenu, E. A., Vintila, G., &Gherghina, S. (2018). The impact of capital structure on risk and firm performance: Empirical evidence for the bucharest stock exchange listed companies.
International Journal of Financial Studies, 6(2), 1–29. Retrieved from https://econpapers.repec.org/scripts/showcites.pf?h=repec:gam:jijfss:v:6:y:2018:i:2:p:41-:d:140401Nigeria Limited. Ohaka, J. Edori, D S. and Ekwezor, U. C. (2020). Debt financing and firms’ financial performance in Nigeria. Account and Financial Management Journal, 5(2), 2106-2113 Olamiyiwa Yinusa, Aribiyi Mayowa, Yunusa Lateef & Isaq Kehinde (2021) Operating Leverage and Firm Value of Manufacturing Firms in Nigeria, Olowe, R. A. (1998). Financial Management
Olowe, R. A. (1998). Financial Management Concept, Analysis And Capital Investments. Lagos: Brierly Jones Nigeria Limited.
Organization for Economic Co-operation and Development (OECD). (2017). OECD Business and Finance Scoreboard 2017. Organization for Economic Co-operation and Development. Retrieved from www.oecd.org/daf
Owolabi, S. A., Obiakor, R. T. & Okwu, A. T. (2011). Investigating Liquidity – Profitability Relationship in Business Organisation: A Study of Selected Quoted Companies in Nigeria. British Journal of Economics, Finance and Management Sciences, 1( 2).
Owolabi, Sunday Ajao & OBIDA, Solomon Small (2012); Liquidity Management and Corporate Profitability: Case Study of Selected Manufacturing Companies Listed on the Nigerian Stock Exchange; Business Management Dynamics 2(2)
Pandey, I.M. (2010). Financial management (10th ed.).New Delhi: Vikas Publishing Home PVT Ltd.
Salawu, R. O. (2017). An Empirical Analysis of the Capital Structure of Selected Quoted Companies in Nigeria. The International Journal of Applied Economics and Finance, 1 (I), 16 – 28.
Siaw Frimpong (2018) Access to versus usage of external finance by Micro Small and Medium Enterprises in the Kumasi Metropolis: A research Journal of Finance and Accounting 9(2);6-15
Published
2023-12-26