Impact of Corporate Financing on the Performance of Manufacturing Firms in Nigeria

Abstract

This study examined the impact of corporate financing on the performance of manufacturing firms in Nigeria between 2015 and 2024 using panel data analysis. Five financing variables including Debt Financing Ratio (DFR), Equity Financing Ratio (EFR), Lease Financing Ratio (LFR), Trade Credit Ratio (TCR), and Retained Earnings Ratio (RER) were analyzed to assess their effects on profitability, measured by Return on Assets (ROA). Macroeconomic indicators such as Inflation Rate (INFR), Exchange Rate (EXR), and Interest Rate (INTR) were included as control variables to capture systemic influences. An ex-post facto research design was employed, drawing data from audited financial statements and macroeconomic databases. A purposive sample of 50 manufacturing firms was selected based on data availability and industrial relevance. Panel least squares regression was applied, with the Hausman test guiding model choice, while robustness was ensured through descriptive statistics, correlation analysis, crosssectional dependence tests, unit root checks, and cointegration analysis. The results revealed that DFR and LFR had significant negative effects on ROA, underscoring the risks of excessive leverage and costly lease obligations. In contrast, EFR and RER exerted positive and significant influences, confirming that equity financing and reinvested earnings enhance profitability by reducing financial rigidity and dependence on external obligations. TCR showed no significant impact, while INFR, EXR, and INTR were also insignificant, suggesting that firm-level profitability was shaped more by financing strategies than by macroeconomic fluctuations during the period. The study concluded that Nigerian manufacturing firms benefit most from equity and internally generated funds, while overreliance on debt or leasing constrains profitability. It recommended optimizing capital structures by prioritizing equity and retained earnings, alongside policies that improve access to equity markets and reduce debt costs. By focusing on Nigeria’s manufacturing sector, the research contributes context-specific evidence to corporate finance literature in emerging economies.