EFFECT OF DEBT FINANCING ON FINANCIAL PERFORMANCE OF SELECTED MANUFACTURING FIRMS IN NIGERIA

Abstract

This study examined the effect of debt financing on financial performance of selected manufacturing firms in Nigeria. Specifically, the study analyzed the impact of total debt, debt ratio, and interest expenses on profit after tax of selected quoted firms in Nigeria. The study covered five (5) manufacturing firms randomly selected from all listed manufacturing companies in Nigeria. The scope of this study by years will span through a period of five (5) years covering 2012 to 2016, data used in the study were sourced from the annual reports of firms sampled for the study. The study employed panel-based modelling, in which profit after tax was used to measure profitability, while debt finance was proxied by total dept., debt ratio and interests expenses. The study made use of estimation techniques including pooled OLS estimation, fixed effect estimation, random effect estimation followed by post estimation test including restricted f-test and houseman test. Findings revealed that total debt exert insignificant positive impact on profit after tax, with coefficient estimate of .0477349(p=0.590 > 0.005), while debt ratio exert significant negative impact on profit after tax, with coefficient estimate of -2421.905(p=0.003 < 0.05), result also revealed that interest expenses exert insignificant negative impact on profit after tax, with coefficient estimate of -58.06436 (p=0.469 > 0.05). The study recommend that manufacturing should ensure to organize their financing option manufacturing firms should avoid debt overhand and manufacturing firms in the country should ensure that they opt in for debt finance only when it is necessary as the last resort, to position them for better operational efficiency.