FINANCIAL DISTRESS AND CORPORATE VALUATION OF NON-FINANCIAL FIRMS IN NIGERIA
Keywords:
Corporate Valuation, Financial Distress, Non-Financial Firms.Abstract
This study investigated the effect of financial distress on the corporate valuation of non-financial firms listed in Nigeria, with a specific focus on firms within the consumer goods sector. The research assessed how liquidity ratio, cumulative profitability, asset productivity, and corporate insolvency influenced firm value, as proxied by Tobin’s Q. An ex-post facto research design was adopted to analyse historical data without manipulating variables, making it particularly suited for examining retrospective financial conditions and their long-term implications on valuation. The study drew its population from the 21 listed consumer goods companies on the Nigerian Exchange Group (NGX) as of December 2024. Using purposive sampling, 16 companies were selected based on operational consistency, listing history since 2012, and the availability of complete financial reports spanning from 2012 to 2023. Data were sourced from audited financial statements and analysed using a panel data methodology, integrating both time-series and cross-sectional dimensions to enhance the robustness of findings. The regression results revealed that liquidity ratio, cumulative profitability, asset productivity, and corporate insolvency all exert significant effects on Tobin’s Q at a 5% significance level. Specifically, adequate liquidity and strong profitability enhance firm valuation, while higher levels of corporate insolvency reduce it. Asset productivity also shows a positive and significant influence, underscoring the importance of operational efficiency in driving firm value. The study recommended that corporate financial managers adopt liquidity benchmarking tools and proactive working capital policies to maintain optimal solvency. Profitability should be sustained through strategic reinvestment and transparent financial reporting, while asset utilisation must be optimised via technology and lean practices. To mitigate insolvency risks, firms should implement financial early warning systems and adopt prudent capital structure policies. Regulatory bodies such as the Nigerian Exchange Group and the Securities and Exchange Commission (SEC) are encouraged to institutionalise stress testing and financial resilience disclosures to improve transparency and investor protection.
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