Leases Financing, Liquidity, and Return on Equity of Selected Manufacturing Companies in Nigeria: Implication of IFRS 16 Leases

Abstract

The new IFRS 16 standards, which replaced IAS 17, have brought changes affecting primarily leases, and while the lessor's accounting remains largely unchanged, this could result in changes in companies' investment decision options. Studies have argued that the new IFRS 16 has come with complexities affecting the financial and off-statement of financial position events. However, the extent of the effect on corporate return on equity, especially for manufacturing companies, remains unclear. As a result, the impact of lease financing and liquidity on the return on equity of selected listed manufacturing companies in Nigeria was investigated in this study. Secondary data was acquired from a population of 66 manufacturing organizations using an Expo facto research design. 10 companies were purposefully chosen and listed over a 10-year period from 2011 to 2020. The data was analyzed using descriptive and inferential statistics. Lease finance and liquidity were found to have a beneficial impact on return on equity (<i>Adj.R²</i> = 0.064; <i>F_{(4, 95)}</i> = 18.57; <i>p-value</i> = 0.05). In introducing firm size as a controlling variable, the study revealed that firm size, leases financing and liquidity had a stronger positive effect on return on equity, (<i>Adj.R² </i>= 0.121; <i>F_{(5, 94)}</i> = 28.29; <i>p-value</i> < 0.05). The study concluded that leasing and liquidity had a beneficial impact on the return on equity of selected Nigerian listed manufacturing enterprises. The study recommended that managers show competence when making lease finance and liquidity decisions because poor decisions could jeopardize the attainment of corporate goals and objectives.