DEBT FINANCING AND PERFORMANCE OF MANUFACTURING COMPANIES IN NIGERIA

Abstract

Certain companies have accumulated substantial debt that surpasses their net gains, which has a negative impact on their performance and investor trust. Consequently, this can ultimately end in complete collapse and even lead to closures. Based on the above corporate challenges this study examines into the effect of debt financing on performance of manufacturing companies in Nigeria. The study employed the descriptive survey design. The secondary panel data was sourced audited financial statement of selected manufacturing firms in Nigeria from the period of 2019-2022. The panel regression technique was employed to determine the relationship and magnitude of impact between the dependent variables and independent variables. The Hausman test was employed in taking decision from the pooled effect, fixed effect and random effect model. The findings from objective one revealed that short term debt has negative significant effect on return on equity at (β:-0.23: p<0.05) while long-term debt has positive significant effect on return on equity at (β: 0.10: p<0.05). Objective two revealed that long-term debt and debt ratio has negative significant effect on earnings per share at (β:-1.57: p<0.05) and (β:-42.73: p<0.05). The study recommended that manufacturing companies should aim to reduce reliance on short-term debt, as it negatively impacts return on equity (ROE) due to higher interest rates and repayment pressures. Instead, companies should consider increasing long-term debt, which positively affects ROE by providing stable, lower-cost financing over extended periods. A balanced debt structure, with strategic use of long-term financing, can help firms enhance profitability while maintaining financial flexibility and managing risks effectively.