Publisher: Centre For Social Science Research, Enugu

Effects of Debt Financing On Financial Performance of Firms Quoted On The Nigeria Stock Exchange (2008-2012)

Dr. Ude, Alexander Onyebuchi
KEYWORDS: EFFECTS OF DEBT FINANCING ON FINANCIAL PERFORMANCE OF FIRMS QUOTED ON THE NIGERIA STOCK EXCHANGE (2008-2012)

ABSTRACT:

Effects of debt financing on financial performance of firms quoted on the Nigerian stock exchange (2008-2012) was carried out with the following objectives (i) to determine the impact of debt financing on Earnings Per Share (EPS) of Nigerian firms, (ii) to determine whether debt financing (TDR) has enhanced the value of Nigerian firms. The following research questions were asked (a) to what extent does debt financing impacts on the earning per share of Nigerian firms (b) to what extent can debt financing enhance the value of Nigeria firms. The following hypotheses were stated. (i) debt financing does not have a significant impact on earnings per share of Nigerian firms, (ii) debt financing does not enhance the value of Nigerian firms. Out of the population of two hundred and seventy six (276) quoted firms, thirty (30) were selected as the sample size through stratified random sampling method (excluding the financial service industry). Hypothesis one was tested using the Ordinary Least Square (OLS) simple linear regression model. Hypothesis II was tested using the Multiple Discriminant Analysis (MDA) model. Findings from the test of hypotheses suggest that total debt ratio does have a positive but a non significant impact on earning per share of Nigerian firms, that debt financing does enhance the value of Nigerian firms. The implications of the finding is that firms management should ensure that the financial decision are made in a way to fundamentally create and enhance the overall value of the firm. The conclusion is that debt financing is costly when a firm cannot cover its interest expenses on creditors and that earning decline can develop during economic financial trauma. Yet it is a better option for capitalizing a firm. The study recommends that the amount of debt finance in the financial mix of a firm should be at the optimal level so as to ensure adequate utilization of the firms assets for enhanced firm profitability.



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