Influence of financial crisis on leverage decisions and performance of selected quoted companies in Nigeria (2006-2013)
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Date
2015
Authors
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Publisher
Obafemi Awolowo University
Abstract
This study examined the trend of financial leverage in quoted firms in Nigeria between 2006 and 2013 and also identified the determinants of financial leverage in non-financial firms in Nigeria. It also determined the influence of financial crisis on leverage decisions and performance of quoted companies in Nigeria.
This study employed primary and secondary data. The population for this study was non-financial firms quoted on the Nigerian Stock Exchange (NSE). Forty firms were purposively selected based on the availability of data required for the analysis, that is, each firm must have financial data reported on the Nigerian Stock Exchange database from December 31, 2005 to December 31, 2013 and complete financial information for the sample period. Primary data were obtained by administering structured questionnaires to the finance department of the selected firms.
The trend of financial leverage was analyzed and the results showed that the respondent firms depend heavily on debt financing and rely more on short term debt financing especially during the crisis before attempting to reverse it after the crisis between 2010 and 2012. Short term debt increased slightly by 4.8% between 2006 and 2007 and increased abruptly by 51.5% between 2007 and 2008 but however declined by 57% between 2009 and 2010. Long term debt increased sharply before the crisis year by 99% almost doubling itself and increased in 2008 by 32%. Also, Seven factors (growth opportunities, profitability, tangibility, earnings per share, issuing cost, tax economics associated with debt financing and risk/cost of financial distress) were tested on the possible determinants of leverage from the analysis of the result obtained from the questionnaire administered to the finance unit of the selected firms; all the factors were significant in determining the financial leverage of a firm at 10% significant level except tangibility. The study also investigated the relationship between firms’ performance, leverage decisions and financial crisis. The results showed that short term debt (t=6.489, p<0.05), total debt (t=0.647, p<0.05), growth (0.938, p<0.10) and size (t=7.521, p<0.10) had positive significant effect in determining the market performance of a company while long term debt (t=1.680, p>0.10) and tangibility (t=0.391, p>0.10) has insignificant influence on firms’ market performance. Short term debt (t=0.665, p<0.10) and total debt (t=0.715, p<0.10) have positive and significant relationship with the accounting performance measure (ROA) while size (t=0.274, p>0.10) has a negative significant effect. Long term debt (t=0.162, p>0.10), growth (t=0.469, p>0.10) and tangibility (t=0.134, P>0.10) have insignificant effects on accounting performance. Financial crisis have negative but significant effects on both marketing and accounting performance measures. This implies that firm performance reduced during the financial crisis years.
The financial crisis that occurred in the late 2000s had a major impact on firms’ capital structure greatly disrupting the leverage decisions of firms. In line with the findings of this study, it is concluded that firms rely more on debt, especially short term debt during financial crisis and that financial crisis negatively affect the performance of firms.
Description
xii,89p
Keywords
Financial crisis influence, Financial levearge, Financial crisis, Firm capital structure, Nigerian Stock Exchange, Leverage decision, Leverage performance, Finance
Citation
Yusuff, Y.S. (2015). Influence of financial crisis on leverage decisions and performance of selected quoted companies in Nigeria (2006-2013)