Corporate Financing Structures and Firm Performance in Nigeria’s Manufacturing Sector

Abstract

This study investigates the effect of corporate financing structures on firm performance in Nigeria’s manufacturing sector using a panel data framework. The study is motivated by persistent financing constraints, macroeconomic volatility, and the need for optimal capital structure decisions among manufacturing firms in emerging economies. Secondary data were obtained from audited financial statements of listed manufacturing firms, Nigerian Exchange Group (NGX) reports, Corporate Affairs Commission (CAC) filings, and verified industrial publications, covering the period 2015–2024. Macroeconomic control variables, Inflation Rate, Exchange Rate, and Interest Rate, were sourced from the Central Bank of Nigeria Statistical Bulletin and the World Bank’s World Development Indicators to ensure data reliability and consistency. Firm performance is proxied by Return on Assets (ROA), while corporate financing structure is measured using Debt Financing Ratio (DFR), Equity Financing Ratio (EFR), Lease Financing Ratio (LFR), Trade Credit Ratio (TCR), and Retained Earnings Ratio (RER). The study adopts random effects regression following diagnostic and specification tests, allowing for firm-specific heterogeneity and efficient parameter estimation. Empirical results reveal that the constant term is positive and statistically significant, indicating an average ROA of approximately 14.92% when explanatory variables are held constant. Debt financing is found to exert a negative effect on firm performance, while equity financing and retained earnings exhibit positive and significant influences on ROA. Trade credit demonstrates a positive but moderate effect, reflecting its role as a flexible short-term financing source. Lease financing shows a weak or mixed relationship with performance, suggesting limited efficiency gains in the sector. Macroeconomic variables reveal that inflation and interest rates negatively affect firm performance, whereas exchange rate movements exert a significant influence through input cost and export competitiveness channels. The study concludes that financing structure choices significantly shape the performance of manufacturing firms in Nigeria and emphasizes the need for balanced financing strategies supported by a stable macroeconomic environment.